When most people think of a personal finance book, they think of something similar to All Your Worth. At least it’s what I think of: a guide to the emotions and the mechanics of getting your financial life straight in these times.
I first came in contact with this book when I went to the library shortly after my financial meltdown – it was one of about eight or nine books on personal finance that the librarian thrust into my arms. I took it home and devoured it in one sitting, like I did most of the other books I read in that first batch. As with all of the other books I read in that batch, there was one key idea that stuck with me from this book, and that was that the real key to personal financial mastery is balance.
Let’s walk through the book so you can see what I mean.
6 Steps To A Lifetime Of Riches
The first half of the book details a six-step plan for getting your finances in order. In general, the advice is pretty standard, but there are a few interesting twists.
Step One: Count All Your Worth
The goal of this chapter is to do a complete financial accounting of where you are at, separating the money into three groups: must-haves, wants, and savings. Warren suggests that a healthy distribution between these three groups is 50% must-haves, 30% wants, and 20% savings – the further away from that balance that you are, the less enjoyable (or at least more stressful) your life likely is, particularly as the must-haves get higher. Instead of giving guidelines about how to get close to those target percentages, though, this section is mostly about calculating the percentages; the advice comes later.
Step Two: Excape from the Thinking Traps
This chapter is very psychological in nature – it deals with overcoming psychological traps to getting your money in shape, such as “But housing is too expensive” or “But I have kids” or “But my wife doesn’t work.” For the most part, thoughts like these are just excuses to keep you from really whipping your money into shape. If you’ve got a reason like this that keeps you from really attacking your finances, you should clearly specify what the idea is, think about the goals you want to accomplish, then spend time researching and trying to understand whether the idea is actually preventing you from saving or if you’re just using it as a crutch. Face it and take it on – that’s the way to get past psychological traps.
Step Three: Count the Dollars, Not the Pennies
This chapter, for me, was one of the highlights of the book as it clearly makes a really important point: a lot of the things that people define as “must-haves” are quite often not really “must-haves.” You might be living in a normal house in a normal suburb, driving a normal car, but if the continual payments on these are preventing you from building wealth, then you need to look at making a change in your life. But the neighbors have these things isn’t an excuse – likely, your neighbors aren’t building wealth, either.
Following the All Your Worth plan, you need to trim your “must-haves” down to half of your take-home, so you might expect lots of frugal living tips. Well, that’s not what you get. Instead, it’s tips on how to trim big, sustainable pieces from your budget, like reevaluating your insurance, selling your car (or getting a cheaper, more efficient, or more reliable one), refinancing your mortgage, looking for a tenant, and so on. The key here isn’t to spend your time clipping a coupon, but to look for things that will save significant money over the long run that can really change the percentage of your paycheck devoted to “must-haves.”
Step Four: If You Can’t Afford Fun, You Can’t Afford Your Life
Here, the sacrifices that are made in the previous chapter pay off. If you get your must-haves down to around 50% and then actually save 20%, that leaves 30% of your income for your wants. That’s great! But if you’re not careful, spending money can burn you. Thus, the book really advocates setting spending limits and never spending money on wants that you don’t already have in cold, hard cash – in other words, no more credit cards. By doing that, you don’t make a want into a must-have and thus keep your financial house in order.
Step Five: To Build Your Future, Pay Off Your Past
So, now that you’ve maneuvered your “must-haves” to roughly 50%, your savings to 20%, and your discretionary spending to about 30%, it’s time to look at eliminating your debt. That money comes from the 20% savings portion of your monthly budget – as long as you have significant debt, you should use this 20% to eliminate it in the form of extra payments beyond the “must-have” minimum payments. In fact, All Your Worth actually suggests reducing your savings down to $1,000 to focus on paying off debts (obviously, don’t cash in anything that has a significant tax penalty). Once you’ve got those debts paid off, though, it’s time to move onto the final step.
Step Six: Build Your Dreams a Little at a Time
Once you’re debt free and have your spending in order, the fun begins to happen. You’re now in a position to start socking away 20% of your money. The chapter offers some investment advice, but quite honestly, when you reach this point, you really should pick up a well-written investment book like The Bogleheads’ Guide to Investing (read my full review of the book).
The second half of the book focuses on three specific topics: relationships and money, buying a home, and planning for emergencies.
Love and Money: Having It All
This is basically a one-chapter compression of David Bach’s Smart Couples Finish Rich (read my full review) in that it focuses on many of the rough spots of mixing relationships and money. Most of the time, it comes down to communication, as do most sticky relationship issues.
The Big Buy: Purchasing the Home That Is Right for You
This was a very interesting chapter, because it’s one of the few personal finance books I’ve ever seen that doesn’t simply insist that you buy a home as soon as you have that down payment in hand. Basically, the book’s advice is that you should live in the cheapest place that’s acceptable to you whether it’s renting or not in order to minimize that piece of your 50% must-haves, but that if you’re renting, you should be saving at least some of the 20% savings for a down payment on a home.
Financial CPR: Protect Yourself When Things Get Tough
The final chapter is one of the most important ones in the book: how do you handle an unmitigated financial disaster, such as a life-threatening illness or the loss of primary employment? A ton of good suggestions are offered here, the best one being know at all times what wants you could cut and even what must-haves you could cut and review that list regularly. There’s also suggestions on progressively worse situations: talk to and negotiate with your creditors and, if all else fails, consider bankruptcy. This section is handled with great care and maturity and was one of the real highlights of the book for me.
Buy or Don’t Buy?
I enjoyed the book quite a bit: it was very realistic and down-to-earth without feeling overly simplistic, either, which makes it appealing to a lot of readers. Buy this book if you’re looking for a financial plan that doesn’t demand that you cut things to the bone or consider major lifestyle changes.
On the other hand, the fact that this book doesn’t really go over re-evaluating your true relationship with money in your life is also a weakness, and that’s why I would really recommend reading All Your Worth as a follow-up to Your Money or Your Life (read my review of that book). Why? All Your Worth is a very, very good book if you already understand the role that money plays in your life, as it provides some guidelines for getting everything together. Your Money or Your Life, on the other hand, focuses on defining and understanding your relationship with money.
I really enjoyed this book and see the power of the information inside of it, but I do worry that it’s something like a diet book: it’s really easy to fall off the horse unless you’ve made that key mental commitment first.
All Your Worth is the twenty-seventh of fifty-two books in The Simple Dollar’s series 52 Personal Finance Books in 52 Weeks.