Review: Killing Sacred Cows

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

killing sacred cowsI quite enjoy reading personal finance books that offer different advice and ideas than the rest, even if I don’t agree with what they have to say. Killing Sacred Cows, by Garrett B. Gunderson, falls into this category.

Killing Sacred Cows (ussurprisingly) takes on some financial “myths” that the author argues is destroying your prosperity. As with all such books, it’s an entertaining read and it makes quite a few good points – and quite a few questionable ones. That’s why it’s worth reading – it, at the very least, provokes you into thinking about things.

Let’s dig in and see what Gunderson has to say.

Myth 1: The Finite Pie
Quite often, people convince themselves that the good things in life are scarce. There’s only so much success and money and opportunities to go around, they argue, and they’re jealous of the people that have the things they do not. In truth, there’s a bounty of wealth and opportunities in the world, and someone else’s success almost never precludes your own. Instead of worrying and stressing about the great things others have, focus on improving yourself and claiming opportunities for you.

Myth 2: You’re in It for the Long Haul
I’m not sure I agree with this “myth.” Here, Gunderson argues that 401(k)s are simply there for people to sock their money away for some ultra-expensive unspecified retirement, and that a better option is to use it now in ways that multiply your money. In other words, instead of saving for retirement, channel that money into improving your earning potential – an education, starting a business, and so on. I think this philosophy makes a big assumption about 401(k) savings – that they’re just for some sort of “golden years” image of retirement that’s starting to not reflect reality. In truth, 401(k)s are often simply a tax-advantaged way to save for the long-term future. I actually think for most people that Roth IRAs are the best option of all, since earnings aren’t taxed at all if you withdraw them when you’re over 59 1/2 years old.

Myth 3: It’s All About the Numbers
It’s not all about the numbers. It’s all about the psychology. Do you have the mental strength to overcome temptations, buckle down, and save? Or are you prone to keeping up with the Joneses and constantly giving into simple temptations? It doesn’t matter how good your investments are if you constantly buy yourself splurges and are in debt up to your ears.

Myth 4: Financial Security
Financial security used to mean a steady paycheck and a pension, but the world doesn’t work that way any more. Instead, the true source of financial security is you: the unique skills you have, the experience you have, and the connections you have to others. If you can provide genuine value to others, you’ll always find work – if you can’t, you won’t be finding work any time soon.

Myth 5: Money and Power
Money is not power. Money is just an expression of the value created by people for people. People who create more value tend to accumulate more money. You do not need to have money to make money – you just need to be able to produce value on your own with your skills, connections, experience, hard work, and creativity.

Myth 6: High Risks = High Returns
The big problem that Gunderson points to (in so many words) is that people often confuse volatility and risk. Volatility means that over a certain period of time, an investment might go up and down rapidly. The stock market is volatile and you know it’s going to be. Risk centers around the as-of-yet-unknown outcome of a future event – you take on risk when you assume the outcome. A well-researched investment lowers the risk (because you increase your actual knowledge and reduce the unknowns about it) but doesn’t change the volatility (it’ll still be somewhat volatile, no matter how much you know). If you assume a lot of risk, it just means you’re investing in something you know little about – and that’s more or less akin to gambling.

Myth 7: Self-Insurance
Insurance is there to decrease the risk in your life, nothing more, nothing less. The less insurance you have of various kinds, the more risk you expose yourself to. Gunderson highly recommends buying a wide variety of insurance, arguing that the financial cost of the insurance is low compared to what it protects you against. I think it tends to come down to your personal situation – if you don’t have many assets or resources to protect, there’s not much need for insurance. If you’re driving a junk car, for exmaple, full insurance is pretty much overkill.

Myth 8: Avoid Debt Like the Plague
In so many words, Gunderson distinguishes between good debt and bad debt. In general, bad debt has high interest rates and is used to buy stuff that doesn’t help you generate additional income. Good debt has low interest rates and is used to generate additional revenue in your life. Student loans, for example, would be “good debt,” while credit cards are almost always “bad debt.” The problem with this dichotomy is that the line in the middle is blurry – there’s a giant grey area in this dichotomy. What about a car loan? Some car loans might be “good debt” – like a used car loan to help you get back and forth to work – but a car loan to buy a Mercedes is likely “bad debt.” But where’s the line?

Myth 9: A Penny Saved Is a Penny Earned
I agree strongly with the argument here. Gunderson argues that price really doesn’t matter compared to value when making a purchase. Does the item actually provide deep personal value to you? If the answer is yes, don’t be afraid to spend money on it. The challenge here is doing enough personal reflection and self-analysis so that you clearly understand what things provide value in your life and which things do not.

Is Killing Sacred Cows Worth Reading?
Killing Sacred Cows is thought-provoking. It will make you think about your money. For me, that’s strong praise – that’s what I look for more than anything in a personal finance book.

Having said that, I don’t wholly agree with all of the conclusions in the book. I think the “good debt”/”bad debt” dichotomy is a pretty bad one – all debt is bad and to say any of it is good is to try to put a nice label on something that’s a bit less onerous than something else. I also felt like the insurance chapter was practically written by an insurance salesman and was obviously targeted toward people with a lot of assets to protect.

It’s definitely an enjoyable read that will make you think (Gunderson has an engaging writing style), but I wouldn’t follow all of the advice as gospel. Of course, I wouldn’t follow the advice of any one personal finance book as gospel.

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  1. That’s a controversial book for sure!

  2. Tommy says:

    Its funny how much you hate debt. Might it be a personal reflection of the fact that you couldn’t handle the debt you initially took on?

    Or are you seriously prepared to argue that taking out loans to pay for med school (assuming that you want a career as a doctor, obviously) isn’t a good thing? You would likely make that money back several times over the cause of your career especially since so many people are heading for that time in their life where they need more health care?

    If your child where to need health care that was not provided by your insurance and which your emergency found couldn’t cover, would you not take out a loan to pay for it, if her life depended on it? What if it wasn’t urgent, but would seriously impact her quality of life – say surgery to correct blindness?

    I can definitely see the problem with a gray area, but to go from there to assuming that all debt are bad is, to me, an emotional overreaction.

  3. Eric says:

    In this recent financial crisis, a phrase we heard often is that in order to get our economy back on track we needed to get banks lending again because “credit is the LIFEBLOOD of our economy.” So many times this was followed by a politician then claiming that this meant we needed to make it easier to get a car loan or help consumers with their credit cards and get banks to make loans to individuals. This was confusing what type of credit is truly the “lifeblood” of our economy.

    The fact is, in business, a certain degree of leverage is healthy and can create lots of wealth. What many fail to understand is that the “lifeblood” credit is used to CREATE and PRODUCE – NOT CONSUME. Every time a business wants to launch new operations or products, they try and finance it with the most “ideal” mix of debt and equity, depending on what is created. And no good business is going to borrow unless they are creating more than they are borrowing.

    The reason credit cards and car loans are “bad” is because the debt does not create anything – it merely facilitates consumption. The reason student loans are considered “good” (and I understand that they can be used to excess… but let’s assume in this example someone that prudently used loans for medical school) is because they create value and facilitate production.

    All debt is not bad. And your comment that it is is completely naive and sounds pretty uneducated. Do you have a mortgage? Did you have student loans (could you have gotten your education without them?) We all know you have a car loan, because you decided that your “equity” was better to have liquid earning nearly as much as what you would be paying in interest. – It seems like you know these basic principles in practice, so why did you make that statement that “all debt is bad,” when by your actions you don’t believe it?

    Is that what your Dave Ramseyite readers have come to expect from you?

  4. Holly says:

    Some interesting ideas but I disagree with the author over #1. If his definition of success is wealth then yes, there is a finite amount to go around. Wealth is tied to resources and there is a finite amount of resources in our world. If we added up all the resources in the world, divided it by the number of human beings and gave it some kind of numerical value (for example- each person gets “100″ meaning a certain amount of arable land, oil, coal, gold, etc) then for me to have 150 (and be wealthy), someone else has to have 50 or many people need to have 99.

    Yes, there are people who accumulate wealth that has nothing to do with resources (actors, etc) but that is because what they do earns money for other people that enables those people to get their hands on something tangible. All wealth eventually comes back to resources. It might seem to people like us in the Western world that there is an infinite amount of resources, but that’s mostly because we are leeching the resources of the poorest countries.

    To say there is an infinite amount of success means a redefining of success to things like love, happiness, knowledge, etc. I don’t need to make you ignorant to be more informed. I don’t need you to be miserable to increase my happiness.

  5. Ms. Clear says:

    Myth #1 and Myth #5 have pretty much been conclusively disproved if one studies the economic aspects of world history.

  6. Johanna says:

    @Holly: That’s not correct. It’s true that the Earth has a finite amount of raw materials, but over the years, humans have figured out new ways to make use of those raw materials, which leads to more material wealth for the world as a whole.

    For example, the computer in front of me, even though it’s five years old and on its last legs, is worth far more than the raw materials that went into its manufacture. Same goes for my refrigerator, my cell phone, my LED flashlight, and my guitar, just to name a few things that I can see from where I’m sitting. When people figured out how to make these things, and then made them, the world became wealthier.

    It’s also not true that rich countries have become richer by causing poor countries to become poorer. Poor countries have become richer too. Africa as a whole has become vastly wealthier over the last 200 years. Even when you account for the increasing population, the “average” (there’s that word again) African today is much better off than was the average African in 1809.

  7. Johanna says:

    For supporting information that backs up my statement, see “The End of Poverty” by Jeffrey Sachs. Chapter 2.

  8. mee3 says:

    I’m surprised you say all debt is bad – you took a car loan for your Toyota Prius yourself, arguring that the deal was a good one and the rates were excellent.

    I would say that a student loan that results in a good degree is not necessarily a “bad” debt – likewise perhaps starting a business.

  9. Troy says:

    I agree that all debt is bad. Because it is.

    All Debt Is Bad. Always. All the time. For the Debtor.

    Now…that doesn’t mean it isn’t necessary. Or needed. The reason can certainly be good.

    There are several instances where debt is useful, or necessary, or desired, or needed. Some of the examples from above, like med school or needing money to save a life are all instances. Borrowing money to buy a home is sometimes necessary.

    But that doesn’t make debt good. That makes the reason for obtaining the debt good. The debt itself…always bad.

    NOT needing to borrow money for any reason is what is good. Having cash is good.

    An action and the reason behind the action are sometimes different.

  10. getagrip says:

    Just actually finished the book, and frankly I hated it. Many of these supposed myths, aren’t. They’re strawmen arguments based on the wild ends of the talking head spectrum at best and never uttered by a reasonable financial planner at worst. This guy is an insurance salesman, who earned $133K out of college per his statement on page 21 and went on to near half a million the next year. Is it any wonder his chapter on insurance is focused on getting salesman the highest commission possible. I love how he glosses over the fact that a million dollar whole life policy for someone in their thirties would be more than 17 percent of what the average American household income is (e.g $50K and insurance costs of $9 (pg 172)). Yet he claims putting money in a 401K is a hoax and accumulation of money you don’t use during your life is a waste? So what is putting +22% of your actual take home in an insurance policy where you’ll never see the money and can’t even influence the investments considered? I guess he just figures if you’re pursuing your soul purpose you’ll be making into the mid six figures so that million dollar policy will be a drop in the bucket.

    What gets me hot here is that he completely discounts all the people who are doing what they love, are working their “Soul Purpose”, but unlike his ilk, don’t do it by leaching commissions out of others. For many of these folks whose income is generally limited, he offers no practical advise except to take all your 401K money out and start your own business. Oh, also buy multiple real estate properties and rent them out right away so you can earn that $1000 a month in rent with no extra work involved.

    Nothing new, and what few decent ideas or examples he had are so buried in the blather it’s not worth the read. I’m sorry I took Trent’s advice and waded through this one.

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