Your Money Ratios:  8 Simple Tools for Financial Security

By: Charles Farrell

This book is written by Charles Farrell.  If you haven’t heard of him, he writes the Retirement Roadmap column for CBS Moneywatch.com.  This book has been given rave reviews by the Wall Street Journal as the “Best Financial Formula Book of 2009″.  It’s a super easy read and very practical.  If you have concerns or questions about “where you’re at” when it comes to your financial security and in comparison to people of your age, then this book will really help you get rid of those unanswered questions.

He answers in detail (so detailed you can calculate it yourself) the basic questions of personal finance:

How much should I be saving each year?
How much should I have saved at my age?
How much debt should I carry?
How do I invest my savings?
What insurance do I need?

The theme of the book is to find ways for you to move from being a laborer (someone who works for money) to a capitalist (someone whose money works for them). He looks at different personal finance decisions- investments, real estate, insurance and tells you whether or not these decisions you make will help you move from being a laborer to a capitalist.

The gist is that you want to become a capitalist when you are 65 (or earlier, for us young’uns I hope!) and to do that, you need to build up your capital. If you have a GINORMOUS mortgage, you won’t have money to save, and therefore you won’t have money to build up on capital. Your mortgage (for your principal residence) isn’t considered your “capital” because it doesn’t really generate you money (especially with the real estate crisis going on right now–anywhere except in Vancouver, of course).

So he tells you point blank, that if you were 25, how much capital to income ratio you should have in order to retire comfortably  by 65 with 80% of your previous income.  He does the same thing with if you were 30, and 35 etc. all the way until 65.  So there’s none of this guessing.  You can compare.

He compares:

1. Capital to Income Ratio
2. The Savings Ratio
3. The Mortgage to Income Ratio (us Vancouverites really suffer here)
4. Education Debt you could have in order to generate more income (if you don’t have a salary increase after your education’s done, then basically he says it’s not really worth it)
5. The proportion of stocks and bonds you should have as you age
6. How much Disability insurance you should have as you age
7. How much Life Insurance you should take out in comparison to your income

This book goes in detail about 401 K’s, health insurance, and Long Term Care insurance if you were living in the United States.  I found a lot of the information irrelevant for me (being a Canuck and all), but it was sure interesting to read about the differences.  He even defines Medicare and Medicaid, and shows that despite the common belief, Medicaid is really difficult to apply for and get (basically you have to be completely broke to get it).  He defines Social Security and is confident that it WILL be there when you retire, but that you should also not rely 100% on it and work on your own savings.

He does say you should save between 12-15% of your pre-tax income on savings, which I think is a good number that we should all strive for (considering the national savings rate is likely WAYYY below this).  He does say that the mortgage to income ratio should be no more than 2.0, and if you pay more than this, you should consider moving to a different state where housing is cheaper and the quality of life isn’t as nice (e.g. move out of California and into…..landlocked suburbia?).  I find this ratio super hard to achieve– the mortgage to income ratios here are around 3.2 or… MORE… what we were approved for was 4.5.

There’s even an online money ratios calculator on his book’s website (but you need the access code found in the book- so go get it), so you can truly know where you’re at.

I did my own calculation and here’s how I compare right now:

• Capital to Income Ratio: 1.35 (yay!- the recommended for my age is 0.21)

• Savings Ratio: 12.3% (nice- the recommendation for someone my age is 10%)

• Mortgage to Income Ratio: 0.0 (duh haha that’s because I have no mortgage- but I will and this will cream my ratios)

Here’s my hypothetical situation if I were to buy a place (which is expected in a few months)

• Capital to Income Ratio: 0.44 (still double the recommended, but sad to see all my money saved up trapped in a down payment)
• Savings Ratio: 10.0% Probably will drop because of the mortgage payments, hopefully won’t drop even more as interest rates rise (I’m doing a variable mortgage)
• Mortgage to Income Ratio: 3.38 (ouch- that sucks.  I can’t get anything in Vancouver for the mortgage ratio recommended from the book- maybe a closet?  Or I might have to move *GASP* out of Vancouver??)

Book Giveaway!

So onto the good stuff!  I have a brand spankin’ new copy of the book Your Money Ratios that I’m itchin’ to give away (Thanks  Penguin Group!).  All you have to do (I’m making it as easy as I can for you) is to subscribe by email or RSS (if you subscribe by RSS, you have to comment below to let me know you entered or else you’d have signed up for nothing- except getting the pleasure of reading my blog regularly, of course.).  The winner will be selected with random.org and will be announced the following day after the contest ends.

The contest runs from today until July 7 at midnight PST (that’s 9pm for you East Coasters) =)

This book is $26.00 US and $32.00 CAD at your local bookstore.  Or you can always Amazon it.

GOOD LUCK!!

Enjoy Your Money! How to Make It, Save It, Invest It, and Give It (The Adventures of the Counterculture Club)

by J. Steve Miller

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Outliers: the Story of Success, written by Malcolm Gladwell delves a bit deeper into analyzing why certain people are successful.  We often assume that successful people were ambitious, driven, and hard working.

Malcolm refutes this and instead theorizes that successful people are that way because of the events and people around them.  They were in the right place at the right time.  It has to do with generation, culture, and class.  Opportunity. Luck.

He explains why Steve Jobs of Apple and Bill Gates of Microsoft are successful, why NHL hockey players are mostly born in January, why Asians are good at math, and how Korean Airlines got rid of their tarnished reputation for safety with a conscious change in cultural behaviour.

In the last chapter, he even analyzes how he became who he is with the story of his grandmother and his own mother in Jamaica.

This book was really fascinating, and it helps you understand the world around you.

It helps you put success in context…I want to be an outlier! (In a positive way!)

I give it a 10/10… read it- I highly recommend it.

Readers, have you read this book? Or any of the other Malcolm Gladwell books? What’d you think?

One Up on Wall Street: How to Use What You Already Know to Make Money in the Market

was a book I got on Amazon.ca.  I didn’t know that it was going to be so wee in size when it came in the mail.  It’s quite cute- like a pocket book!  It’s the Miniature Edition of the his New York Times Bestseller book.

Contrary to popular belief that size matters (wink wink nudge nudge), this book, even though it’s small, is jam-packed with lots of good information.

Peter Lynch is famous for writing Beat the Street and Learn to Earn.  He’s the vice-chairman of Fidelity Management.

In this no-nonsense easy to read book he talks about:

1. Preparing to Invest- he says that the term “professional investor” is actually an oxymoron- that there are good ones and bad ones, and we shouldn’t put fund managers on pedestals, without adding a touch of skepticism.  He says it’s important to only invest in what you can afford to lose without that loss having an effect on your daily life in the foreseeable future.
2. Picking Winners- He gives you tips on how to stalk the “tenbagger” (the stock that will give you 10x return on your inveestment) that the McDonald’s and Coca Colas started off somewhere, and the keen investor should keep an eye out for those new local companies.  A couple huge tips I would like to share are: “Companies that have no debt can’t go bankrupt” and “look for companies that consistently buy back their own shares” and “invest in at least as much time and effort in choosing a new stock as you would in a new refrigerator”.
3. The Long Term View- Peter shares the secret about when to sell a Slow Grower, a Stalwart, a Cyclical, a Fast Grower, a Turnaround, and an Asset Play.
4. He also mentions Twelve Silliest Things that People Say about Stock Prices like “Eventually they always come back” or “It’s only $3 a share, what can I lose?
5. And finally talks about some reminders to be aware of, like “market declines are great opportunities to buy stocks in companies you like.  Corrections- Wall Street’s Definition of going down a lot- push outstanding companies to bargain prices”.

Even though it’s so short and sweet, I give this book a 9/10 for being very informative, cutting the jargon and nonsense and delivering an easy to read book packed with good tidbits for any market investor.  Really, not one word is wasted in this book!

So without further adieu, here’s your chance to win a copy of this book (which is my copy, mint condition)!  It’s worth a whopping $4.95. It’s my first ever give-away, so bare with me… the contest prizes will hopefully get a little more fruitful as time goes by.

“One Up on Wall Street” Contest Rules:

To win, please subscribe to Young and Thrifty either by email updates or RSS and follow me on twitter (yes, I’m demanding, I know!).  Please also comment below so I can contact you in the event you win (and mail out the prize!).  If you already have subscribed and are already following me on twitter- thank you!- just leave a comment below so I know to add you to the contest =)

To win an extra entry, please tweet to your followers:

” @youngandthrifty Book Giveway: “One Up on Wall Street” miniature edition by Peter Lynch http://bit.ly/aM5xjf ”

The winner will be selected by random.org.

You have until April 1, 2010 at midnight PST (west coast time) to enter

The winner will be announced next week and I’ll contact you by email.

Good Luck! It’s a great book!

The Wealthy Barber

By David Chilton

The Wealthy Barber was lent to me by a friend who wasn’t very keen on financial planning (her boyfriend gave it to her)- she hadn’t finished yet. So I borrowed it.

It’s an easy read. It’s an older book (published 1995) but it’s very relevant… timeless! It’s kind of a page turner in a way- you want to find out what Roy says next, or what happens next to the characters in the book… I guess it’s like the Harry Potter or Twilight of financial planning. Somehow the author manages to pack in everything you need to know about finances (wills, RRSPs, insurance etc) into this neat storyline.

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The Automatic Millionaire:

A Powerful One Step Plan to Live and Finish Rich

By: David Bach

The Automatic Millionaire was one of the first financial books I have read. David Bach is an international best seller with his books- he has multiple books that spawn off the idea of this first book (For example, Start Late Finish Rich, Smart Couples Finish Rich, The Automatic Millionaire Homeowner. The Automatic Millionaire has a simple and key message.  He says that it is human nature to screw up budgets.

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Rich Dad Poor Dad

By: Robert Kiyosaki

Rich Dad Poor Dad is the “quintessential” book for every person interested in personal finance, it seems.  Everyone has heard of it.  If you haven’t, you’ve probably been living under a rock.  I have read a few financial books and have always wanted to read Rich Dad Poor Dad, especially since I see their free conventions/ seminars being hosted here so often (haven’t gone to one, but I hear they are ploy to make you buy their merchandise and classes…)

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