Reconsider the advice in 3 popular personal finance books

In times of economic stress, it is good to know the basics of personal finance.

Lots of people turn to books for help, so we decided to go back and revisit three of the most popular finance books from the past 15 years: “The Nine Steps to Financial Freedom” by Suze Orman (change, $ 16.99); “The Total Money Makeover” by Dave Ramsey (Nelson Books, $ 26.99); and “Rich Dad, Poor Dad” by Robert T. Kiyosaki (Plata Publishing, $ 8.99).

They all have something interesting to offer, but after reviewing them, I discovered that they all had one glaring omission: a lack of substantive investment advice. You’ll need to go elsewhere for an in-depth discussion of how to build a portfolio and choose from stocks, bonds, exchange-traded funds, or mutual funds.

What all three books emphasize is the need to strengthen your finances by doing things such as reducing debt and spending. And they share a constant refrain: You are ultimately responsible for your own financial success.

However, the authors have different views on how to be successful. Ms. Orman says trust your instincts. Mr. Ramsey says to relentlessly eliminate every shred of debt. And Mr. Kiyosaki says to emulate the rich, who have figured out how to “make money work for them.”

Oddly enough, for the books that focus on building wealth, all three advocate contributing to charity. They say it’s the right thing to do in itself, but they also say it’s worth doing on a spiritual level: the more you share with the universe, they argue, the more the universe will share with you. .

Why are books so popular? Spiritual content can explain part of it. But the powerful media presence of the three authors certainly helped.

Ms. Orman has had a show on CNBC for over a decade and now does corporate speeches on personal finance. Mr. Ramsey has a subscribed radio show and Mr. Kiyosaki frequently appears on television and hosts seminars.

As for quality, Ms. Orman’s book is the best of the three for standard financial matters, although each has an undeniable appeal.

“The nine stages of financial freedom”

The good things about Ms. Orman’s book begin with her ability to reduce financial planning to its basics and her wise suggestions on how to achieve your personal goals.

“Unrealistic budget cuts, like unrealistic diets, never work,” she writes. Cut modestly here and there, she says, rather than trying to make big cuts. And Ms. Orman emphasizes aspects of adult life that are often overlooked, like making a proper will and appointing someone who will be able to make health care decisions for you. , in case, at some point, you can’t.

While she doesn’t offer detailed financial advice here, Ms. Orman, a former brokerage firm, recommends that you own index funds and diversify your holdings.

Unfortunately, the book is a bit outdated. It was first published in 1997, has not been revised since 2012, and contains references to events such as the Dow Jones closing at 11,000. This last happened in 2010.

Its tone is supportive and intimate, and it often turns ethereal.

Unconventional idea: “Money is a living entity and it reacts to energy in exactly the same way you do. She is drawn to those who welcome her, those who respect her.

Questionable advice: “Even if you only have one mutual fund, your money is still quite diversified because you own a bit of everything that they are invested in. “

It depends on the fund you have. If your only holding is an actively managed small-cap mutual fund, you only own shares of small-cap companies preferred by that fund manager. You are far from being diverse.

Representative sentence: “When it comes to money, freedom starts to happen when what you do, think and say are one.”

‘The total metamorphosis of money’

Mr. Ramsey has a major theme, which he hammers home until you want to scream. “Excluding virtually everything,” he says, eliminate debt.

The only possible exception he allows is a small mortgage that you can easily afford (even then he urges you to pay it off quickly).

If you’re in debt, even if your employer will match the first 3 percent you put in your 401 (k) each year, says Ramsey, you shouldn’t profit from the match. He says it’s better to spend that money on what you owe.

Financially, it doesn’t make sense unless you pay more than 100 percent interest on what you’ve borrowed. If your employer matches your pension contribution, you get a 100% return on what you have invested. Still, Mr Ramsey says that while he understands the math, it’s more important to be debt free.

I do not agree. Advising people to forgo retirement from their business is one of the many things I didn’t like about the book, which was originally published in 2003 and has been updated several times since. The last revision dates from 2013.

Mr. Ramsey seemed to be struggling to find enough to say. At the bottom of every page you will find this line: “If you live like no one else, later you can live like no one else.

This epigram would be very good if it were indicated once. But the constant repetition seems designed to fill the space, as does the unusually tall guy. (Yes, it was nice that I didn’t have to use my reading glasses, but still.) Even with these features, the book is just over 200 pages, not counting 20 pages of worksheets and an index.

His tone is always severe and pragmatic.

Unconventional idea: Pay off your smaller debt first, even if the other money you owe has a higher interest rate. “Quick wins” will help you build momentum.

Questionable advice: You can withdraw 8% of your retirement savings each year and not outlive your money.

Most experts say a safe annual withdrawal rate is much lower, no more than around 4% or, using conservative rules, maybe 5%.

Representative sentence: “I was given a calling: to show people the truth about debt and money and to give them hope and the tools to be financially free. “

“Rich daddy, poor daddy”

Mr. Kiyosaki reminds me of Ayn Rand. He says you should focus relentlessly on achieving total independence from the crowd – financial independence, in Mr. Kiyosaki’s case.

He presents his financial principles in a narrative structure that resembles a novel, contrasting what he learned from his biological father (“get a secure job, work hard, play it safe”) and his other “father”, a wealthy man. entrepreneur who has forged an independent financial path while living below his means.

The book was first published in 1997 and most recently updated in 2017. As it unfolds you see Mr. Kiyosaki, who served in the military, move from a job as a Xerox salesman in his vocation as an investor, ending altogether. on the way to her “rich daddy”. He soon bought real estate to minimize his reliance on a paycheck and began to protect his income and minimize taxes by setting up companies.

Owning things that generate wealth, he says. In addition to income-producing real estate, he says, this includes stocks, bonds, and royalty-generating intellectual property (inventions, books, etc.).

Despite the quick narrative, the book has a heavy tone: it reads like a lecture from an economics professor.

Unconventional idea: Don’t focus on your job or your career. Think mainly about building up personal wealth.

Questionable advice: “With low interest rates and an uncertain stock market, the old adages of saving and investing for the long term make no sense.”

Saving and investing for the long term is exactly what most experts say you should be doing.

Representative sentence: “The main cause of poverty or financial struggle is fear and ignorance, not the economy, the government or the rich.”

What is the use of these books?

While the lack of specifics about investing is disappointing, and the outlook is often offbeat and sometimes questionable, all three books offer solid advice: Eliminate Debt. Live below your means. Look for ways to supplement your income.

This is always good advice.

Like this, which comes from my immigrant grandfather: Dig your well before you are thirsty.

What he meant was to prepare for the inevitable while you have the time.

These books are imperfect, but if they teach people so much, they have real value.