Review: Beyond Paycheck to Paycheck

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Every other Sunday, The Simple Dollar reviews a personal finance book.

beyond paycheck to paycheckI picked up Beyond Paycheck to Paycheck because of one word: conversation.

For the most part, Beyond Paycheck to Paycheck by Michael B. Rubin covers the nuts and bolts of personal finance pretty well. What sets it apart is the method it uses to relate this information – most of the chapters take the form of a back-and-forth dialogue between you, the reader, and the writer.

Don’t get what I mean? Here’s a snippet from the first chapter:

You: Why is my money worth less in the future than it is worth today?
One reason is inflation. Inflation is the overall trend of rising prices over time. Most items rise in price. Inflation has historically averaged about 3 to 4 percent each year. You might not notice the small yearly increase, but over many years these increases have a tremendous effect.
Remember when Manhattan was purchased for $24?
You: Um, I’m pretty sure that happened way before I was born.
Hey, you’re pretty sharp over there. Indeed, that sale did happen a long time ago; 1626 to be precise. Still, 24 bucks doesn’t sound like very much, does it? But assuming 4 percent annual inflation over 382 years, $24 in 1626 is worth roughly $77 million in 2008! So you would have definitely preferred to receive $24 in 1626 instead of receiving $24 in 2008.

That section is more indicative of the style of the book than of the complexity – it definitely moves on to more complex topics. But it is that style that sets it apart – and it’s a style that I think will appeal quite a bit to some readers and annoy others.

But is the information presented good? Let’s dig in and see what we can find, shall we?

Chapter 1. The Basics: Tell Your Money to Go to Work
The opening chapter really focuses on two things: inflation and the miracle of compound interest. In both cases, the author is mostly just seeking to make the definitions of each quite clear and show a bit of how they compete against each other. Luckily, I’ve already explained inflation and compound interest in beginner’s terms, so most of the information in this opening chapter should be old hand to a Simple Dollar reader.

Chapter 2. Don’t Be Cheap, Be Fiscally Responsible
From there, Beyond Paycheck to Paycheck moves on to looking at your active income – the money you make from working – and net worth, which is basically how much of your active income you’ve kept from paycheck to paycheck over the long haul. Obviously, the way to increase your net worth is to spend less than you earn – and the book offers ten tactics for doing that, including my favorite one, enjoy being with the people you like. Rubin argues that if you’re with true friends, they’re just as happy spending only $15 on a meal out than the $35 on dinner and drinks you might spend trying to impress someone. Good advice, and there’s several other equally good points in here.

Chapter 3. Debt Sucks (Your Money Away)
Here, Rubin addresses the painful item known as debt – frankly, it’s the reason why many people pick up books like this. Most of the stuff here is standard debt-reduction stuff: Rubin buys into the separation of good debt (home mortgages, student loans) and bad debt (credit cards, most other kinds of debt) and encourages people to pay off bad debt first and keep it gone. Rubin also delves into credit reports and credit scores a bit, pointing out why it’s invaluable for a person to keep paying their bills on time, and he discusses the basics of a debt repayment plan. In other words, it really hits the basics of debt management in that conversational tone the book uses.

Chapter 4. Taxes on Your Taxes Are Taxing (Yet Real)
Many people are scared to death of doing their own taxes, even if they’re simple. I know my parents are, for one example – they take theirs to a preparer (even though I’ve offered to do their taxes for them for free). Rubin basically does a soft introduction to the various kinds of taxes out there, focusing primarily on income tax and income tax filing. He actually comes to the same conclusion I do: you should at least try to do your own taxes. It’s a worthwhile activity that teaches quite a bit.

Chapter 5. Use Protection: Insurance
Rubin thoroughly covers the various types of insurance here, walking through them in that conversational style of his, including thorough coverage of life insurance, health insurance, home insurance, and auto insurance. One notable topic covered here that doesn’t regularly get covered in other discussions of insurance is umbrella insurance – insurance that covers you in the event that your liability exceeds the amount of insurance coverage you have. Rubin’s argument is that umbrella insurance is good if you have assets to protect that are above the value of the insurance you have – if not, it’s not worthwhile.

Chapter 6. Take Advantage of Your Benefits (or You’re Being Kind of Dumb)
Here’s some great advice – know your work benefits. Go carefully through all of the benefits available to you at work and make sure you’re taking advantage of as many benefits as you can. After all, this stuff is just free money – insurance, retirement accounts, spending accounts, and other perks do nothing but save you money. Sure, it might be boring to go through, but it puts money straight in your pocket. Most importantly, Rubin offers a very informative section on retirement plans through work – how to set up your 401(k) and such.

Chapter 7. Ira Roth Is Not Your Congressman – Do-It-Yourself Retirement Planning
What if you’re like me and you don’t have an employer? Or you want to save more for retirement (or for other goals) outside of work? There are a lot of options available to you for this as well – Roth IRAs, traditional IRAs, and brokerage accounts. Again, Rubin walks through each of these options in detail. I quite liked this chapter and wish I had read it a couple years ago, because I myself was nervous about a Roth IRA.

Chapter 8. Maximize Your (Investing) Performance
To me, this is the real highlight of Beyond Paycheck to Paycheck. It’s a spectacularly strong fifty page summary (still in that conversational layman tone) of the basics of investing. Rubin starts out in the right place, focusing on risk tolerance and time horizon before even looking at investment options at all. From there, he moves through different investment choices, pointing out that for shorter term investments, less risk is generally better, but for longer term stuff, more risk is better. He even digs rather deeply into portfolio theory, explaining the reasons why saving for a particular goal might involve multiple investment types to reduce risk. Excellent stuff – perhaps the best layman’s primer on investing I’ve ever read.

Chapter 9. Death Happens: Estate Planning
The book starts to wind down here, covering end-of-life topics such as a living will, a will, a power of attorney, and so on. Solid information for everyone to know, as there are some actions (such as a will, a living will, and possibly a trust) that people should take today as well as things people should be ready to help family members with later in life.

Chapter 10. Take This Book and Use It!
Rubin closes with an astute point: this book is useless unless you use the information inside. So he provides some checklists for ways to get started. A to-do list is a great way to end the book and encourage people to take the next step.

Some Thoughts on Beyond Paycheck to Paycheck
Here are three things I think I think about Beyond Paycheck to Paycheck.

I wish I’d found this book in April 2006. While it’s not as inspiring as, say, Dave Ramsey or Your Money or Your Life, it provides a flavor of very conversational basic personal finance information that would have been very valuable to have during my financial meltdown.

It’s clearly targeting beginners, however. Make no bones about it, though: the material here is targeting people who don’t know a whole lot about managing their money. Beyond Paycheck to Paycheck is a very solid book, don’t get me wrong. It’s brilliantly written, with a soft and direct and often lightly humorous tone.

I wish such a book weren’t necessary. The fact that basic personal finance needs to be repeated in so many ways signals that there simply isn’t adequate personal finance education going on in schools. Where is the basic consumer education? I know many people of college age who believe that money simply comes magically out of their credit cards – and that’s frankly sad. I wish books like Beyond Paycheck to Paycheck didn’t have to exist – but I’m glad they do.

Is Beyond Paycheck to Paycheck Worth Reading?
It’s pretty clear from this read-through who Beyond Paycheck to Paycheck is perfect for: anyone who is nervous about managing their money at all and wants a gentle hand to guide them through. They don’t want to be treated like a child, but they also don’t want to be quickly lost in a wide array of terms.

Beyond Paycheck to Paycheck is great at this. In fact, I’d argue that Beyond Paycheck to Paycheck would make a very solid book for a consumer education course in high school. It’s not overly long and is broken down into nice little pieces, each with a gently-introduced concept to swallow.

For many people who have a strong grip on their finances, Beyond Paycheck to Paycheck is pretty simplistic – but you shouldn’t be spending your time reading this one, anyway. If the topics that I mentioned above seem just about right, Beyond Paycheck to Paycheck does a great job of walking through them in a friendly tone.

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14 thoughts on “Review: Beyond Paycheck to Paycheck

  1. To beat the inflation, a diversified portfolio invested in quality equities is required. Buffett wrote an op-ed post in The New York Times on Oct 16. In this post, Buffett stated that he is getting rid of cash (lots of it) and buying stocks. He said, “Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value.”
    Cheers,
    A Dawn
    http://www.adawnjournal.com

  2. You write: “you should at least try to do your own taxes…”

    I strongly disagree with this if you own your own business or are thinking of starting one. I made this mistake when I first started my business and it has cost me tens of thousands of dollars. There are complicated writeoffs and depreciation schedules that a CPA can find for you that you likely won’t know about. Even TurboTax won’t help you if you’re doing more than filing a simplistic schedule C.

    If you are a salaried employee and that’s the only money you make, the cheap tax prep software will work fine for you. But this is terrible advice for anyone who has rental property, manages a small business, or makes consulting income on the side. Take it from someone who lost a LOT of money trying to save a little bit.

    -Erica

  3. I guess I’m going to play “Comic Book Guy” for this post.

    Your inflation illustration is pretty misleading. Inflation was pretty miniscule until the last century or so, especially since the United States has adopted fiat currency.

    I could be missing something, and I’m sure a historian could correct me, but I think we’re looking at closer to $1000 2008 dollars for Manhattan rather than 77 million.

  4. I did my own taxes until I started my own business. I know squat about business taxes except that I need to pay them, so I asked another small business owner for a recommendation for a tax preparer. Best thing I ever did. The CPA found it interesting (because it was tough, with income taxes owed to two states and various municipalities) and gave me some pointers on running a small business- he owns his practice. Well worth the money spent. Like Erica above, I strongly recommend consulting a CPA for taxes, and I suggest talking to a CPA well before tax time.

  5. Actually, Roth was my senator for most of my life. Delaware in da house! (sorry, I couldn’t resist.)

    As for taxes, I’m going to be talking to a CPA this year at least. It’s my first year with lots of blogging/freelance income and I want to do it right. Depending on how things go, I may do them in the future.

    Before, I always did my taxes myself: manually when I was single and had 2 jobs (one school, one home) and then using software once I got married and had to deal with a bunch of paychecks.

  6. Trent,
    Thanks so much for that review! (I spotted it on INGs website and suggested it Sep 28.)
    It does seem like it would be a bit too entry-level for my own reading, so I’ll probably dig into something a little meatier. I still have about 85% of _The Bogleheads’ Guide to Investing_ left to read, largle because it got fairly dense fairly quickly.

  7. “The fact that basic personal finance needs to be repeated in so many ways signals that there simply isn’t adequate personal finance education going on in schools. Where is the basic consumer education?”

    Finance education is missing, but there is plenty of basic consumer education… they are called advertisements… buy, buy, buy!

    Or did you mean good basic consumer education to counter that force?

  8. “Your inflation illustration is pretty misleading. Inflation was pretty miniscule until the last century or so, especially since the United States has adopted fiat currency.

    I could be missing something, and I’m sure a historian could correct me, but I think we’re looking at closer to $1000 2008 dollars for Manhattan rather than 77 million.”

    That was a direct quote from the book, not *my* inflation illustration.

  9. I’m curious as to why you think this stuff should be taught in school… I mean, do you want the schools to teach how to cook a meal, plan a menu, grocery shop, mow the lawn, put gas in your car, keep track of oil changes and tire rotations, and oh, you ought to clean your gutters, paint your house now and then, clean your furnace filters, etc. ? This is something parents should teach. And if they don’t, then look around, read, and learn. Your parents will never teach you everything. The schools will never teach you everything. Schools should teach you how to LEARN so you can learn on your own what you need to know, including personal finance stuff, etc.

  10. “The fact that basic personal finance needs to be repeated in so many ways signals that there simply isn’t adequate personal finance education going on in schools. Where is the basic consumer education?”

    This type of statement as often presented as an absolute given but I frankly find it a lame excuse to lay blame away from personal responsibility. In elementary schools the kids learn basic math and often cash is used as the real world example. Middle school math expands on this and often has compounding interest examples, which is included in various forms up through the one year of math which most states require high school students take. So its not like they don’t know about the “power of compound interest” or money in general. In our area schools they’ve replaced the “home economics” cooking class with a class to address home life issues, to include creating a budget and a consumer spending section. While they don’t belabor being out of debt, the idea of living within your means is covered. Often, in social studies classes, you get exposed to business ideas, stock investing, capitolism versus socilism, etc. Honestly, I got a lot of this back when I was in middle and high school many years ago and do remember the exposure to it.

    So essentially the basics are out there and provided. That people blow them off, ignore them, or conviently forget them, is not necessarily the school’s fault any more than someone saying they don’t know the rules to football, even though they had gym sessions in it three years running in middle and high school. I mean, for crying out loud how many sixth graders know the basics for writing a letter or paper and yet how many adults couldn’t come close because they can’t be bothered to look it up.

    For the most part people chose to forget those things that don’t interest them, and the basics of personal finance aren’t particularly interesting to a 14 year old who’s stream of real income comes from Mom and Dad. That interest sadly comes later to most of us when we have to deal with the real world.

  11. “That was a direct quote from the book, not *my* inflation illustration.”

    D’oh! You’re right! Sorry about that.

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