Every Sunday, The Simple Dollar reviews a personal finance or other book of interest. Also available is a complete list of the hundreds of book reviews that have appeared on The Simple Dollar over the years.
I picked up this book on a lark off of the shelves at a library recently. I carried it back to a chair with me, expecting to leaf through it and make a quick decision about whether to review it or not (which is what I often do with personal finance books at the library).
Instead, two hours later, I found that I’d read the entire book. That seems like a review-worthy book to moe.
The 5 Lessons a Millionaire Taught Me by Richard Paul Evans is a concise book that tries to break down financial (and life) success into five key principles. Like many such thin books, the ideas here are lean. Evans has clearly taken the “less is more” approach with this one.
Decide to Be Wealthy
This seems like an obvious first step, but it’s harder than it seems. Do you want a lifetime of financial success? Or do you want to be the first person on your block with an iPad 3? Very rarely will those two things go together.
Simply put, you have to want financial success. You have to want freedom from debt and, eventually, freedom from work. More importantly, you have to want them more than the trappings of affluence often seen in the world. You can either “live rich” or be rich. Almost no one can really do both.
Take Responsibility for Your Money
This is the key first step to financial success. Know how much money you have. Be aware of where every dime goes – and why it’s going there. Once you start asking yourself the why when it comes to every dime you spend, you begin to see how much of your money is wasted on things that aren’t helpful with where you want to be going.
This is painful self-analysis for many people. You have to move from blaming others for you not getting ahead to looking at all of the choices you’re making. Often, that’s an ugly picture.
Keep a Portion of Everything You Earn
The simplest way in which people do this is withdrawing a bit of each paycheck for their retirement fund. That’s a good start, but it goes deeper than that.
For example, many people are hooked on a chain of making car payments, then eventually trading in that car for another car on loan and making payments on that car. Instead, keep a portion of each paycheck for the next car you’ll have to buy. Instead of paying interest to the car dealership on each and every loan payment, you can keep all of that interest money for yourself and even earn a bit more from the interest on your savings account where you keep that money.
It’s all about saving a little bit at a time so that you have a big mountain later on. It’s about spending less than you earn each pay period and actually conserving the rest.
Win in the Margins
Here, Evans is essentially talking about frugality. There is a lot of money to be mined from the little changes you can make in your life.
For example, if you open your windows up and stop using your air conditioning and heating as much, you’ll cut your energy bill a bit without inconveniencing your life much at all. If you try buying some generic items and raw ingredients at the grocery store, you’ll spend significantly less on food and household supplies, again, without inconveniencing your life.
Make enough of these little changes and you’ll have the money to do things like setting aside money each month for your next car. Then, when you write a check for that car, you don’t have a car payment to make and can channel that money forward into something else. It builds on itself like an avalanche rolling down the mountain.
The philosophy behind this is that long-term freedom and power are far more valuable than momentary fleeting pleasures. That’s a sound idea to look at everything with.
Evans makes a good case for charity here, but not so much in the form of writing a check to some group and forgetting about it. You should give to the things you care about in life. Get involved in your community. Choose charities that are addressing problems that have touched your life.
Helping to solve a problem you’ve faced in your life – and which continues to trouble others – isn’t just about handing over money. It’s about truly doing something of meaning with your life.
Is The 5 Lessons a Millionaire Taught Me Worth Reading?
I agree strongly with the philosophy in The 5 Lessons a Millionaire Taught Me, and I think Evans has stated it succinctly and beautifully. This is a short and sweet expression of the “why” of good personal finance management.
Because it focuses so much on the “why,” though, it’s clearly in the area of philosophy and inspiration rather than practical nuts-and-bolts advice. Sometimes, people need philosophy and inspiration. At other times, they need the nuts and bolts. If you need a shock to the system to get started, The 5 Lessons a Millionaire Taught Me is a great choice. If you want a pile of practical advice, you may want to look elsewhere.