Every Sunday, The Simple Dollar reviews a personal finance book or other book of interest.
You see, the phrase “first generation white collar” pretty aptly describes me. My parents were decidedly blue collar, as were their parents. I was lucky enough to attend a good university, where I majored in a field (computer science) that stuck me behind a desk rather than on a factory floor or in a sorting room. I earned a salary, not an hourly wage.
In short, I’m that titular first generation white collar.
This book, by L. Marie Joseph, has the rather clear subtitle A practical guide on how to get ahead and not just get by with your money, which really strikes to the heart of the challenge of being a first generation white collar like myself. The problem for me was that my wonderful parents, in a desire for me to have a great childhood, often spent whatever extra money they brought in on things that would brighten my life, from a Nintendo to a trip to a baseball game and all sorts of things in between. In other words, I learned that when you had excess money, you should spend it before it’s gone. My parents absolutely had their heart in the right place, but the end result of their love and their financial situation is that, although I had a grasp on frugality, I didn’t have a grasp on money management and how frugality fit into that picture.
I’ve heard that same story repeated by a lot of people. It’s a story that this book seems to have been designed to address. It’s a story that the author, Joseph, also shares.
The logical place to start with a book like this is with debt, which is exactly where Joseph begins. Those who are first generation white collar often have little grasp of personal finance management and see debt as merely a convenience, thus burying themselves in it before they realize what’s happening. Joseph covers many different kinds of debt here, but one topic that I rarely see addressed in personal finance that’s focused on here is retirement debt – in other words, borrowing ahead against your retirement plan. This is a very dangerous route to follow, simply because almost all retirement debts come packaged with a lot of strings, such as a requirement that they be paid back in full if you lose your position.
Right off the bat, Joseph advises a 70/30 split. In other words, learn how to live off of 70% of your take-home income and apply the other 30% to savings. There are a lot of ways to split up that savings – Joseph suggests (among many plans) that you give 10% to emergency savings, 10% to retirement (such as in a Roth IRA), and 10% to saving for future purchases (like a new car, appliances, vacation, etc.). Again, Joseph offers a straightforwardness and a look at the topic of saving through a new lens in that a portion of your savings is intended to be eventually spent on a larger purchase. By saving now, you’re significantly reducing the long term cost of major purchases such as these.
Yes, investing often comes in the form of CDs and stocks and gold and bonds and real estate, all of which are discussed here. The part that interested me, however, was turning your savings into an investment in a business that you can easily run yourself to break free from the nine-to-five. A good business is simple: it simply has to take care of something that busy people with money in their pockets don’t have time for, but it happens to be something you enjoy. Walking dogs. Watching children. Keeping the books. Preparing meals. It’s all about taking command of that one thing of ordinary life that you enjoy that others perhaps don’t enjoy as much or don’t have time for in their lives.
4. Get Smart About Spending
“Instead of buying an iPhone every few years, buy Apple stock. That’s how a capitalist thinks.” This is the money quote from this chapter. If you want to get ahead financially, spend your money on things that produce value, not things that depreciate. Don’t buy an iPhone – instead, buy the lowest-end phone that you can that meets your needs and put the rest into something that appreciates. Buy a car that does the job of getting you there and put the rest into treasury notes. Make meals at home and put the difference into real estate.
5. Take It up a Notch
This chapter is largely a collection of very specific tips that expand upon the ideas in the previous four chapters. Joseph really hammers home the idea that shifting from spending your money on depreciating things to spending your money on appreciating things makes the difference between long term financial success and long term financial failure.
6. Your Spouse and Money
The noteworthy concept that Joseph introduces here is financial abandonment, which is essentially what you’re doing if you just believe your spouse or your future self can take care of it. You’re abandoning your spouse to the consequences of financial irresponsibility. In other words, when you make a poor financial choice when you’re married, you’re not only damaging your own future, you’re damaging the future of your spouse without them having any input whatsoever into it.
7. Grow and Explore
Statistically speaking, the average person’s happiness is highest when they earn $50,000 a year. If they earn more than that, they tend to start chasing a much higher standard of living, one that’s unreachable. Growth in that way is not a reward. Instead, grow as a person. Challenge yourself through what you’re doing, not through material items.
8. Protect Your Wealth
This brief chapter covers issues such as life insurance, disability insurance, estate planning, and other factors in a short fashion, mostly as an encouragement to dig further into these steps once you’ve started turning your financial life around and have things worth protecting.
Is First Generation White Collar Worth Reading?
If the title of the book describes you, then you’re going to get some value out of this book. If the title of the book does not describe you, then much of this book will be lost on you. It speaks very directly and specifically to the people in the title.
In my eyes, First Generation White Collar works best as a gift for a college student who is about to become the first white collar worker in his family. If you know someone like that, consider this book as a perfect gift for them in order to get their financial life out on the right foot – or at least a lifeline for when they make some of the mistakes they will inevitably make along the way.