Each Sunday, The Simple Dollar reviews a personal productivity or personal development book.

The 7 Habits of Highly Effective People was perhaps the personal development book of the 1990s and is still the book many people think of when they hear the phrase “personal development book.” I first picked up the book myself in high school when serving as a district officer in a large youth organization (the FFA, if you must know) - our advisor gave each officer a copy of the book to keep, but after reading it, I passed it on to others because it didn’t make much of an impact on me at the time.

What do I get out of reading it now as an adult more than ten years later? I will say that my opinion of the book has improved - maturity has shown me that some things I thought to be trite and obvious in my youth were truly neither trite nor obvious, but actually powerful challenges in life. Let’s step through the seven habits to see what I’m talking about.

A Stroll Through The 7 Habits of Highly Effective People

The entire premise of The 7 Habits of Highly Effective People is that most people deal with the problems in their life in a scattershot fashion, and this scattershot fashion leads to disillusionment and disorder. Covey’s answer to this is that to be a truly effective person, you need to learn to solve personal and professional problems with a integrated and principle-centered approach - in other words, the decisions you make both personally and professionally should come from the same core set of values and ideas.

The book is really about developing that core set of values to the point where it’s easy to draw solutions to problems from them, making you a much more effective person in all aspects of life. The seven habits, thus, are ways to draw out the fundamental truths in your life and make them accessible to you at all times, so that when you’re faced with problems, you can easily solve them in a consistent and sensible fashion.

Habit 1: Be Proactive
Principles of Personal Vision

In everyone’s life, there are a multitude of events that occur every day. Out of all of these events, there’s only a subset that are actually of concern to us - the rest really don’t matter (think of things like the neighbor playing catch with his son and the ball bouncing into your yard that you notice out the front door - an event that really doesn’t matter to you). Within that set of events that are of concern is a smaller set that you actually can do anything about, your sphere of influence, so to speak. Now, where is your focus? Is it on those events that you can do something about, or on the ones that are out of your control?

The idea is don’t spend your time focusing on events that you can’t control; instead, focus on what you can control. Let’s say, for example, that you’re waiting for a very important phone call. Some people stress out waiting for the call - that’s a bad habit because you can’t control when the phone call comes. On the other hand, others simply spend their time focusing on the things they can control - the phone call will eventually come, right?

How can you achieve that? Spend a day counting the number of times you spend focusing on stuff you can’t alter the outcome of. Do you daydream about unachievable things? Do you worry about stuff you can’t affect? Cast those efforts aside and spend your time on things that you can affect.

Habit 2: Begin With The End In Mind
Principles of Personal Leadership

This chapter starts out literally at the end: imagine your funeral and what others there are saying and thinking about you. What do you want them to say? The things that you want them to say are the real core values that you care about the most, and thus they should be the ones that you focus your life’s work on, both personally and professionally.

This leads to something that I consider really worthwile: writing your personal mission statement. Can you really codify in a few sentences what your mission in life is? It seems trite, but it’s truly effective if you really spend the time to work out what it really means and actually state it in words - in writing.

The chapter goes through several exercises for teasing out the meaning, but it really all comes back to that funeral scene at the beginning. What will your family say at your funeral? What will your coworkers say? What about your friends? What about people in the community? What do you want them to say about you? That’s your mission.

Habit 3: Put First Things First
Principles of Personal Management

Most things that we do each day can be divided up in two different ways: they’re either urgent or not urgent, and they’re either important or not important. Obviously, in our lives, we wish for the things we do to be important, but we’d also like for them not to be urgent, because urgent things cause stress. So, ideally, an effective person focuses on things that are important but not urgent.

Covey goes a long way with this central idea here, pointing out that we should strive to do this in all aspects of our life, no matter which hat we’re wearing at the moment: worker, parent, spouse, volunteer, and so on. Then, within each of those roles, one should define specific goals that they wish to accomplish, important short term ones. For example, in my role as a parent, I might have a goal of taking my son to the park this week for two hours.

Once you’ve defined a couple of goals for the upcoming week for each of your roles, literally schedule them in. Add these things to your schedule and don’t let anything interfere with them. Because these items are not urgent, you have some flexibility on when to do them, but because they’re important, you must schedule them and keep it on the schedule. He even gives a sample weekly planner page to make this easier. I think this is a fantastic idea and I’m using it to a degree with my 101 goals in 1001 days project.

Habit 4: Think Win/Win
Principles of Interpersonal Leadership

My wife took a course on the seven habits a while back and her reaction to it was that it was full of business buzzwords that didn’t really apply to her life. I now realize that almost every example she used to illustrate that came from this chapter.

Yes, the whole “win/win” business-speak came from this chapter, but that doesn’t mean the idea is bad or flawed. Instead, take it as a fundamental way to see all interpersonal relationships. Is there a way where you both can come out ahead at the end of an interaction? If there is, that’s usually the best road to take, and that’s the real value of the whole “win/win” thing.

I tried some of the exercises from this chapter, and the one that really stood out to me was to think about a relationship in my life that wasn’t in a “win/win” state. I wrote down every notable aspect of the situation from my perspective, then tried to do the same from her perspective. Doing that brought me fairly close to seeing a win/win solution, so I went and had a talk with her, and things were quickly repaired. It really does work.

Habit 5: Seek First To Understand, Then Be Understood
Principles of Empathic Communication

This is probably the habit I’m worst at because I often fill in the blanks unnecessarily when talking with people, which is an incredible no-no. Instead, an effective communicator really tries to understand as much information as possible about the situation before providing a solution.

Covey offers a great example of this in the middle part of the chapter, when he outlines a discussion with a teenage boy that goes terribly. The problem is that they’re speaking to two completely different things: the boy is having difficulty expressing his problem, while the parent is already trying to guess at the solution.

What can be learned? Don’t stab at solutions until the full story is told. If someone comes to you with a situation, hear them out; often it requires the full story and some questions before the correct plan of action is revealed. This means listening and attempting to see the situation from the speaker’s perspective, not just your own.

Habit 6: Synergize
Principles of Creative Cooperation

Although I expected this chapter to be similar to the buzz-speak of the fourth habit, this one actually turned out to be much more worthwhile, because it’s about dealing with the people that tick you off and turning that into something beneficial.

I’m as guilty of it as anyone else: I simply fail to get along well with some people, even people that I ought to get along with for the benefit of both of us. The real key to doing it is to identify what exactly about that person makes them beneficial, and also the specific traits about them that cause you not to like them. Once those are clear, how can those traits be used all together, perhaps along with your own, to make the situation better?

My wife and I do this in parenting. I often find our son’s socially anarchical toddler behavior to be humorous, so when he drops his pants or tries to ride the cat like a pony, I often am forcing myself to suppress laughter and thus can’t really make it clear that it’s the wrong thing to be doing (if he does something truly wrong, though, I’m just fine); on the other hand, I’m much better at reading to him than my wife is and I appear to be his primary language teacher. So we synergize: she focuses on social areas while I focus on reading and language building.

Habit 7: Sharpen the Saw
Principles of Balanced Self-Renewal

This final habit focuses on the need to do things that renew you in several different ways: physical, mental, spiritual, and social/emotional. Quite often, we get so caught up in the day-in and day-out business of life that we rarely step back and spend any time focusing on taking care of ourselves.

Covey ties this in with the third habit and encourages the reader to identify ways to really renew oneself in each of those areas, then literally schedule it in and stick to it, because it’s important but not necessarily urgent. For example, if the physical nature of things is what’s dragging you down (some extra weight, or a general malaise), schedule time to get some exercise two or three times a week and stick with it. If you’re feeling mentally drained, schedule a period of time to relax and let your mind float onto something outside of your normal thoughts (like a book or a movie) or even just meditate. And so forth.

When I was growing up, my family used to devote Sunday afternoons to such tasks. Everyone would take two hours to do something mentally invigorating, like reading a book or doing a puzzle, then everyone would spend two hours doing something physically invigorating, like working in the garden or running or something. It wasn’t as formal as that description, but every Sunday afternoon, it was part of the routine, and it’s something I look back on with fondness as it really helped me recharge and shape my life.

Buy or Don’t Buy?

The 7 Habits of Highly Effective People is more philosophical in nature than many of the other personal development books I’ve read and reviewed on The Simple Dollar. It’s not full of action points you can immediately implement like many other books are; instead, it’s intended to provide a framework of reflection on your greater life from the personal to the professional. If that appeals to you, then you’ll like this book; if not, then you won’t.

Because of the philosophical nature of the book and the very wide focus, 7 Habits is going to appeal in vastly different ways to different people. There isn’t a universal take-home message here; it really depends on the reality of your own life and where you’re at. Even re-reading it again at a different point in life is going to result in a vastly different interpretation of the materials within the covers.

To me, The 7 Habits of Highly Effective People is the perfect book to get through a service like PaperBackSwap (that’s how I got my copy) or your local library; it’s a philosophical read that you’ll likely take some notes from. For me, though, those notes will be what I refer to, not the book.

I made a ton of hand annotations throughout my copy and when I was finished, I went through those and jotted down about a page full of notes out of the book; it’s that page of notes that is the extraction of useful information for my life that I got from the book. Will I ever read it cover to cover again? Probably not. Will I reflect on it and look at the notes again? Almost certainly.

I received a very interesting note from a reader who really deserves a vacation:

I’m in the Army National Guard, currently serving in Iraq. I am scheduled to get home around mid-July, and my wife and I want to take a nice vacation. We’re planning on going to Ireland next year, so we’re not looking to do anything absolutely huge. But, after a year in Iraq, I want to do something very relaxing. Have you ever used a travel agent? We’re considering that route as a possibility, since neither of us have used one, and it would be nice to have someone plan a vacation for us. We’re also considering a road trip to Missouri or Ohio (we live in Indiana), but we have no family to visit, so some of your road trip suggestions don’t really work for us. We’re willing to spend about $1,000, up to $1,500 if necessary, for a nice vacation…

For a small domestic trip like this one, I would not use a travel agent. They’re useful for planning big trips (I used one when planning our honeymoon in the UK) but for smaller trips like this one, it’s not worth the money. Instead, I would do the following:

Have your wife and yourself separately write a list of twenty (or so) places in the United States that you’d love to see. Do this separately, and try to be honest and also creative. My wife and I did this for our 2005 summer vacation (we actually wrote a top 50 list because we really got into it) and we both found that the more honest we were about what we would like to see, the better the trip became. Include visiting relatives and friends on this list.

Once you’re together again, figure out where all of these places are on a US map. Mark them all with thumbtacks so that it’s clear where they all are. This will give you a visual indication of where everything is. We literally used a bulletin board and used two different colors of thumbtacks, one for me and one for her.

Go to the area where the largest grouping of thumbtacks can be found. For us, this turned out to be southern Nevada/western Arizona, because we wanted to visit Las Vegas, Hoover Dam, the Arizona desert, and the Grand Canyon. This area had four tacks pretty close together and they were an equal balance of our colors.

Research that area online and find out the cheapest way to get there and the cheapest place to stay there. For us, we stayed in Las Vegas because we went during the week when the hotels were cheap and the flight there was very cheap. There are lots of sites online for doing such research - Priceline, Expedia, Hotdeals, and so on. Don’t hesitate to look into camping, too, because that can be a very economical option.

Don’t spend more than half your budget getting there, sleeping, and getting back. That means try to keep the travel and lodging under $750 at all costs, leaving you $750 to do things you’ll actually remember. One of our best memories was an amazing breakfast that my wife and I had on that vacation; it was ridiculously expensive, but somehow wonderful. The parts we didn’t remember were when we were sleeping or traveling (other than my wife forgetting stuff at the hotel when we arrived at the airport).

Our Nevada/Arizona trip was by far the cheapest vacation we’ve ever taken, but it was almost our most memorable one, too (behind our honeymoon). Good luck planning your own trip.

This weekend, we’re staying at an exquisite estate owned by relatives of my wife. It’s a gorgeous house, gorgeous land, and well-kept, too. In other words, it’s enough to bring out those little bits of jealousy within me - it would be truly amazing to live here.

Not too long ago, I would have consoled myself by buying something fabulously expensive and showing it off to others, like a neat gadget or something, and it was that mentality that helped lead me down a path of financial collapse. Now I realize that having such things isn’t something that should drive me crazy with jealously and cause me to spend foolishly, but I can use it as motivation for the right kind of financial planning.

Here are some ways to get past the desire to keep up with the Joneses, or at the very least cause it to fuel sound financial planning.

Be honest about the socioeconomic differences between yourself and the person you’re looking at. In many cases, they’ve simply made much more money in their lives than you have, and thus you have some work to put in before you can get those trappings that you desire. Is it reasonable to think that you should have the same home as Bill Gates? No, it’s not. How about Warren Buffett? Keep following that same thought line and soon it will become clear why some people can afford nicer homes and items than others. Instead of wanting what they have now, look at the aspects of your own life that you can improve: education, personal development, and so on.

Don’t compare yourself with people much older than you. I have a great aunt that lives in a fabulous house that’s gorgeously decorated, but she’s twice as old as I am and has been in the work force for much longer. I’m currently doing as well as she is right now and thus over my life I should be able to catch up and surpass her. Instead of wanting what someone else has now, set a goal to have what that person has at that stage in your life.

Know what’s really important to you and don’t worry about the rest. The central focus of my life is my family, so I’m willing to forego some of the trappings that I could afford right now in order to give them a nice life. Instead of filling yourself with desire for the things someone else has, ask yourself what is really central to your own life and follow that instead.

Estimate how much debt the Joneses have. This is perhaps the most powerful exercise for me. Whenever I see someone with elegant trappings, I ask myself how much debt they likely have, and when I start running some numbers, I usually get very squeamish. Living this life, I realize, would leave me without much freedom at all: I would just keep walking forward, day after day, like a soldier going to war. My life right now affords me some freedom; if I decided I wanted to change careers, I could, or if something happened, everything would not fall apart. Instead of lusting after all the material goods, do a thumbnail sketch of their debt and imagine your life with that sort of debt load.

Good luck with not keeping up with the Joneses.

Reading the news lately is like reading a litany of horror stories. Take this brief excerpt from the Washington Post:

Dried apples preserved with a cancer-causing chemical.

Frozen catfish laden with banned antibiotics.

Scallops and sardines coated with putrefying bacteria.

Mushrooms laced with illegal pesticides.

These were among the 107 food imports from China that the Food and Drug Administration detained at U.S. ports just last month, agency documents reveal, along with more than 1,000 shipments of tainted Chinese dietary supplements, toxic Chinese cosmetics and counterfeit Chinese medicines.

Regardless of how you feel about the politics, no one of reasonable nature would want to feed such food to their families, particularly their children. When I look at my nineteen month old son, the last thing in the world that I want to put on his snack tray are dried apples treated with a carcinogen. The truly frightening part is that it is impossible to tell which items are tainted and which are not from the packaging alone.

So what can you do as an average person to avoid these items and not have to spend an arm and a leg shopping at an organic grocery? Here are five ways my family and I minimize our usage of prepackaged food items.

We garden ourselves. It’s pretty hard for vegetables and fruits to be contaminated if you grow them yourself. Spend the time and put in a garden patch, and then store the excess that you grow for the winter months. Tomatoes are particularly nice: you only have to grow a few plants to have an abundance of tomatoes and they can be used in so many ways.

We shop at local farmer’s markets. In Iowa, farmer’s markets are all over the place in the spring, summer, and fall. We hit a lot of them and buy local produce with cash, then take them home and wash them vigorously to minimize the pesticides on it. The costs at farmer’s markets for most things isn’t all that high, and you can sometimes find a bargain if you look carefully. Here’s a guide to maximizing your dollar at a farmer’s market.

We can and freeze vegetables and fruits ourselves. Actually, we cannot do this effectively at our current apartment, but we both did this growing up and we both plan on doing such activities when we move in. It doesn’t really take that much work at all to do either one (canning takes a bit more effort, but the food is never frozen) and it allows for food that you’ve grown yourself to be eaten all year long.

We make as much as we can from basic ingredients. Want to make your own pasta? Mix two eggs with a cup of flour, mix it well, let it sit for a half an hour, then push it through a pasta press or roll it out and slice it up. How about your own spaghetti sauce? Get a jar of tomato juice, add dried herbs to it, then boil it down until you’ve got the right consistency. Most basic items are actually quite easy to make, it just takes the courage to get started … in fact, I wrote about how to get started with cooking even if you can barely boil water.

We buy as much local as we can. Our milk comes from a local dairy, our eggs come from a local chicken farmer, and our meat will soon come from a local meat locker. In each case, I can go right to where that material was made and see the process for myself - and I’ve done it, too. It costs a bit more, but not only am I supporting the local economy, I’m also buying stuff that I can visit the source of and meet the people who work to bring it to my dinner table.

All of these activities not only save money (except for the local food buying), but they ensure that my family is eating good, healthy stuff that, for the most part, I know where it came from.

Every once in a while at the newsstand, I’ll pick up an issue of Kiplinger’s Personal Finance or SmartMoney, just to give myself something to leaf through while I’m waiting at the airport or something. Every time I do it, I wind up regretting it for three big reasons:

The absolutely overwhelming amount of advertisements. I picked up the June 2007 issue of SmartMoney and began to leaf through it until I realized I was mostly leafing through ads. In fact, at one point in the middle of the issue, there were twenty one straight pages of nothing but advertisements. Sure, there’s some good content in there, but this is ridiculous. If you want to see how a mainstream, ad-supported magazine can have a tasteful number of advertisements, look no further than The New Yorker; I had to open the magazine three times before I even saw an ad at all, and even then it was tastefully placed in only a single column. I had to actually browse the whole magazine to find a full page ad.

The incessant shilling for bad mutual funds. I’m not talking about the ads, I’m talking about the articles. Take a look at the June 2007 issue of Kiplinger’s Personal Finance and their list of the 25 “best funds.” Not a single index fund to be found; they’re all managed funds with relatively high fees compared to index funds. You’re trying to tell me that among the 25 “best funds,” there’s not a single low-cost index fund? Even better, most of the fund profiles were actually puff pieces about the greatness of the fund manager. Please. Show me a fund manager who doesn’t gouge the fund with a huge fee and matches or beats the market year in and year out and then I’ll pay attention.

The “guilt” factor The final straw for me is that neither of these magazines are really written with me in their audience. Most of the articles focus on personal financial issues for the upper middle class, particularly those in middle age. In terms of income, I’d probably not put myself in upper middle class (our household income is well above the median, but not incredibly high) and I’m definitely still a twentysomething, so many of the articles simply don’t match my reality. That’s a big reason why I started this site - I know a lot of people are much closer to my reality than the ones portrayed in those magazines.

I’m not saying that the content in these magazines is terrible; there’s a lot of good stuff in both publications. But when you get rid of the advertisements and the advertising copy for mutual funds that passes for some of the articles, what’s really left? Is it worth $5 to you? It’s not to me, especially when I can get similar material from reading personal finance blogs - they’re free and, if I want to, I can support those writers directly by giving them a donation or a micropayment for their efforts. To me, that’s a lot healthier writer-reader relationship.

If you dislike personal finance magazines so much, why do you review each Money issue? For the most part, Money avoids most of the traps I outlined above, though not always and not entirely. I compared my latest issue of Money with the two magazines above and I found that Money had a lower ratio of ads to content (though still too high for me) and when mutual funds were mentioned, they were all from a predefined set that they’d been following for years (the Money 70), which does include a number of low cost index funds. Plus, the magazine often has an article or two directly targeting twentysomethings in similar situations as mine, and also In short, I feel that they’re the best one on the market, so that’s the magazine I give my attention to; picking up the most recent issue of their competitors did little more than reaffirm that feeling.

Our house closes in a little more than a month, so we’re already thinking about moving, and being the frugal types we are, we’re trying to move with minimal expense. Thankfully, we have one big advantage: we are moving locally, which basically means loading up a truck at one point, driving for an hour or so, unloading at another point, then driving back. One big disadvantage: a pregnant wife who can’t lift heavy weights. So what’s a guy to do?

Here’s our tentative plan for moving. Basically, we’re leveraging the fact that we have a lot of help in a short time period and a long lead-up to that period to maximize the usefulness of the big moving day.

First of all, we rented a storage locker about a mile from our expected home for the next two months. Why do this? Well, our current apartment is about 600 square feet and it currently houses two adults, a toddler, and two cats. That means there really is very little room to put boxes as we fill them.

Next, we start filling and clearly labeling boxes, starting with the less essential items. Our first big project is our books, for example, with each of us only actually keeping a few that we’ll read in the next few weeks at the apartment and the rest going into storage. After that, we start cleaning out all the closets and moving everything that can be moved, like my wife’s non-maternity clothes and most of my clothes as well. We eventually progress to the point where there is very little in the apartment as time winds down and things begin to look more and more etched in stone. Obviously, we’ll label the boxes in detail.

Whenever there’s enough for a truck full, I take off to the storage locker and empty the truck. This means that most of the driving is done well in advance of the move and a lot of the items will already be within a mile or so of the new house when we close.

Then, on the big day… My responsibility will be to go to the old apartment and start transporting the remaining items to the new house (three trucks there, one of which is mine and two owned by friends and we work together to load the heavy items). Our other volunteers will just ferry stuff from the storage locker to the house and then help my wife with whatever unpacking duties that she’d like help with.

Do any readers have additional moving advice worth noting? The only other times I’ve moved, I had such a small amount of stuff that I could load it in a single carload, so this is new for me.

One of my worst traits in the past was a lack of organization, and more than once it cost me severely in the form of late fees, weakened friendships, and so on. The biggest problem was that so many of these things need regular maintenance, but I am terrible about doing these things on my own. It used to be that if I didn’t pay a bill as soon as I saw it, it would inevitably incur a late fee because I would simply forget about it.

Here’s what I do to keep my regular financial tasks in line, and it’s easily expandable to fit other regular tasks.

First, I keep a large paper calendar with huge spaces for each date. For personal use, this is more than enough; it gives me room to write several tasks that need to be done in each square.

At the start of a year, I write down all important dates, and I also write in a notice a week or two in advance for all the ones I need reminders about. So, let’s say my father’s birthday is on May 1 - I write in a reminder note on about April 20 that I need to get a birthday gift taken care of.

At the start of a month, I copy all of the regular things from the previous month down. I have two bill paying days (the 8th and the 22nd), I mark when I expect to be paid with regular checks, and I indicate several personal tasks as well. When I have a house, I will be adding a lot of routine and preventative maintenance items to the calendar.

Then, each day all I have to do is check the calendar and see what needs done today. For now, some of the days are empty, while others have two or three things on them; when we move, I anticipate filling up a lot more squares.

It seems simple, but it really works for me. I use it as a complement to my getting things done philosophy, which handles all of the irregular stuff in my life. It also is very effective at keeping those late fees and such at bay.

Almost two months ago, I wrote a detailed review of Burton Malkiel’s investment classic A Random Walk Down Wall Street, which I quite liked. In terms of actual investment advice, however, it was somewhat lacking - it mostly just said that the stock market is very random and efficient, so you’re better off riding the whole market by buying broad-based index funds.

While that’s a good nutshell, it’s not really advice that’s useful for the average investor. Malkiel apparently saw the need for an expansion of the investment advice and thus wrote a companion book, The Random Walk Guide To Investing. Does this book effectively translate the ideas of the original into good investment advice, or is it merely a rehash of the original? Let’s dig in and find out.

Walking Through The Random Walk Guide To Investing

The Random Walk Guide To Investing clearly targets beginning investors; it struck me as having more directly applicable advice than Malkiel’s other book, but also written at a simpler level than A Random Walk Down Wall Street. Most of the book goes over what the cover describes as “ten rules for financial success,” most of which are simply very sound personal finance objectives. First, though, the book identifies three basic points that underline these rules.

The Basics

Basic Point 1: Fire Your Investment Advisor
Investing really isn’t complicated - it’s just often shrouded by an air of complexity that makes it seem difficult for the layman to understand. Think of those terrible “Talk to Chuck” commercials, which portray ordinary people as either uninterested in investing or else not wanting to deal with the complexity - and “Chuck” can make it easier! It’s simply not true; all your investment advisor does is take money out of your pocket either for selling stuff or doing simple things that you could have done anyway. Don’t waste your time or money.

Basic Point 2: Focus on Four Investment Categories
The four categories are cash (savings accounts), stocks, bonds, and real estate; he quickly pooh-poohs investing in precious metals, insurance, or collectibles. Cash and bonds are relatively safe places to keep money, but they don’t have high returns; stocks and real estate have high potential returns, but have risk of losses. Thus, Malkiel looks for ways to minimize risk when investing in stocks and real estate.

Basic Point 3: Understand the Risk/Return Relationship
Most investments come with a risk, but most investments that have a solid long-term basis, like the stock market as a whole, have quite a bit of risk in the short term, but in the long term the risk greatly declines. In other words, put your fingers in a lot of pies and let them sit there for a while.

The Rules

Rule 1: Start Saving Now, Not Later: Time is Money
The earlier in your life that you start saving, the longer you’ll have to have the power of compound interest work for you. Let’s say you want to break ground on an amazing house when you’re 40 and you want to have $500,000 on hand then to do it, and you can earn a 10% return each year. If you start at age 20, you only need to put away $7,813 each year. What if you start at age 25? $13,910 a year. At 30? $26,983 each year. The earlier you get started, the easier it is.

Rule 2: Keep a Steady Course: The Only Sure Road to Wealth is Regular Savings
Once you’ve started investing, don’t slack off. This takes willpower, so do things like setting up an automatic investment plan, developing a clear budget, and evaluating your life to eliminate anything you’re doing that consistently costs money. In other words, be a little frugal, because living high now can really burn you later.

Rule 3: Don’t Be Caught Empty-Handed: Insurance and Cash Reserves
The advice here is great: keep some cash reserves (i.e. an emergency fund) on hand in case of the unexpected, but have insurance in case of the disastrous. An online high-yield savings account is a great place to keep an emergency fund. As for insurance, just shop around, but stick with term life insurance because eventually you won’t need as much, insurance isn’t a great investment, and if you invest your money well elsewhere, eventually you won’t need life insurance at all. I myself have a 30 year term policy that I likely won’t renew - it’s mostly there to take care of my kids if I were to die early, but if they’re all grown, I see no reason to keep it.

Rule 4: Stiff the Tax Collector
If you have tax-deferred or tax-free accounts to put money into, take advantage of it every time. Flexible spending accounts for your medical bills, Roth IRAs, 401(k)s, and 403(b)s for your retirement, 529 college savings plans, and so on. Every time you choose to invest in one of these accounts, you not only get the investment benefits, but you don’t have to pay income tax on the money invested (in some cases ever, in other cases not until much later), meaning it’s a double win.

Rule 5: Match Your Asset Mix to Your Investment Personality: How to Allocate Your Assets
How much risk do you feel comfortable with? For many people, a high-interest savings account is the best vehicle for all of their investing because it earns a very steady return with almost no risk at all. On the other hand, stock investing does generally have better returns, but it can also have some frightening years - a 43% loss in a single year would make anyone uncomfortable, but it has happened with the broad stock market, let alone individual stocks. If the prospect of such losses literally keeps you awake at night, stick with cash and bonds. Better yet, find a mix that you’re comfortable with; if you’re half in stocks and half in cash in a 5% savings account, then even a 43% stock market drop means only a 19% loss in your total portfolio, and you don’t miss out on a big gain, either - a 15% stock market year means your whole portfolio sees a 10% gain. As you can see, the more you have in stocks, the more potential volatility you have, so find where you’re comfortable with your money and stay there.

Rule 6: Never Forget That Diversity Reduces Adversity
This means don’t invest everything in just one thing. Keep some money in cash, some in stocks, and some in bonds. Within the more risky parts, diversify even more: buy some broad-based mutual funds like the Vanguard 500, the Vanguard Small Cap Index Fund, and the Vanguard Total International Fund to keep you in big and small companies as well as domestic and international companies. This way, no matter where there’s a boom, you’ll ride some of it, but if there’s a bust your entire tent doesn’t collapse.

Rule 7: Pay Yourself, Not The Piper
This chapter really only has two points, but one above all: pay off all high interest credit card debt before you invest another dime. Paying off a high-interest debt is like making an investment that returns 19% a year, because if you don’t pay it off, you’re losing 19% a year to interest. Beyond that, when you go to invest, look at the fees you’re being charged to get that investment, and avoid anything with high fees, particularly if there is no guarantee of return (and with stocks, there aren’t).

Rule 8: Bow to the Wisdom of the Market
This is basically a brief rehash of the material in A Random Walk Down Wall Street: don’t talk yourself into thinking you can routinely beat the market because you can’t. For every winner, there’s a loser, and there are so many smart people playing the game that even the smartest lose regularly. The market is quite efficient, which means that when you hear a hot tip from your buddy, it’s either not really much of a tip or it’s blatant insider trading.

Rule 9: Back Proven Winners: Model Portfolios of Index Funds
If it isn’t clear already, Malkiel believes individual investors should be investing in index funds. This chapter gives some general portfolio samples, but they’re a bit dated as of the latest printing of the book. However, the general advice is true: have some in stocks, some in cash, and some in bonds, and the younger you are, the more you should have in stocks. However, if stock losses keep you up at night, turn those stocks into something else (cash or bonds) so that you can get some sleep - an investment should never stress you out, it should make you feel safe.

Rule 10: Don’t Be Your Own Worst Enemy: Avoid Stupid Investor Tricks
The final chapter looks at some psychological tricks that people play on themselves, such as following the herd mentality and investing in whatever the hot new thing of the moment is, or selling when the market is going down because OH MY GOD CNBC IS IN PANIC MODE. Just keep doing what you’re doing, nice and steady, and everything will be just fine.

Buy or Don’t Buy?

The Random Walk Guide to Investing fills an interesting niche as a great guide for investing for complete beginners. It’s simple and makes even my wife feel really comfortable with investment choices.

Having said that, if you want more meat, you’re better off going elsewhere. For example, if you want a more thorough investment guide that’s based on similar principles, check out The Bogleheads’ Guide to Investing (here’s my review). If you want to know more about how the stock market actually works, try A Random Walk Down Wall Street (again, my review).

This book is really great for beginners, but when you start getting into an investment mindset and having some confidence in what you’re doing, you’ll find other titles more fulfilling.

The Random Walk Guide To Investing is the twenty-ninth of fifty-two books in The Simple Dollar’s series 52 Personal Finance Books in 52 Weeks.