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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