Updated on 12.05.10

Review: Smart Is the New Rich

Trent Hamm

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

smartI’ll admit it – I’ve only seen the show Your $$$$$ on CNN once. I don’t watch much cable news – or broadcast television at all – so I don’t have much opportunity to follow programs like that one.

Instead, I came across this book at the library, not knowing the author, Christine Romans, from anything. I checked it out for one reason: it manages to ride the fine line between intelligent personal finance writing and easy-to-read personal finance writing.

It is a fine line, because it’s easy, when you know about finance, to write about it in such a way that’s not easily accessible to the layperson who just wants to make ends meet. At the same time, you can also write about it in such a way that you’re not really saying something of interest to anyone.

It’s a fine line that I try constantly to achieve, and I enjoy it when I find a book that manages to do it. Smart Is the New Rich seems to do that quite well.

1 | Reset, Repair, Recover
Money can’t buy you happiness, but like it or not, it is the engine upon which most material transactions occur. The smarter you get about these transactions, the more likely it is that you’ll be able to have the resources for the things you want in life. The best way to get started is to have a heart-to-heart with your spouse and with yourself. Ask yourself if your money is actually lasting through the month and whether your account balances are actually improving each month (on average). Are you living in housing that’s too expensive (more than a third of your income)? Romans offers up a bevy of such questions.

2 | Spending Your $$$$$
The real lesson of this chapter, I think, is that honesty with one’s self is vital. If you can’t honestly answer the question of whether or not you can actually afford to buy a particular item, it’s going to be very difficult for you to spend less money. Simply put, if you don’t need it, don’t buy it, and if you can’t afford it, put it down. Another key point is the value of saving first rather than last – the first thing you should do with your paycheck is to put some of it in a savings account that you can’t easily touch. I prefer using a completely separate bank for it.

3 | Your Job
I have one minor problem with this book and it begins to crop up here: politics. Romans often tries to slip in political perspectives throughout the book, never really offering enough to give a coherent political perspective, but just enough to taint the waters. Here, the book discusses the job market, pointing out the key fact that if you’re out of work, you need to work hard on retaining your skills and connections. On the flip side, if you’re still employed, future success hinges greatly on results.

4 | Debt
Here, Romans introduces the usual “good debt versus bad debt” dichotomy in which some debt is identified as being “good” (mortgages, student loans) and others are “bad” (particularly credit card debt). I tend to think that even “good” debt isn’t all that good and one of my current financial goals is to move as close to debt freedom as possible, simply because of the oppressive nature of debt paymetns constantly draining away your income.

5 | Credit Cards
Clearly, credit cards fall into the “bad” part of that “good versus bad” dichotomy. It’s key to remember that most Americans pay their credit card bills on time, but some people are unable to cope. Those who cannot need to take radical action to move into a situation where the credit card debts are under control. Another key factor related to credit cards is to make sure that your personal credit is under control – Romans points readers to the the FTC site for getting your credit report from the federal government.

6 | Home Sweet Home
The key thing to remember is that you begin to make money the day you buy your home. You’re now able to have a better commute. You’re more able to cook meals at home and to entertain at home. Don’t focus on “turning” a big profit on your home because, frankly, it’s not realistic. The idea that you can turn a huge profit on your home comes from the housing bubble, which was a period of unreality that we’re still reeling from.

7 | Save, Invest, Retire
Romans identifies three steps to a prosperous future: budgeting, saving, and investing. As you become more prosperous, your focus moves from the first to the second, then from the second to the third (I think we’re undergoing that second transition right now). Romans argues that no matter wherever you are along that spectrum, you should strive to spend only 70% of your income, striving to save or invest 20% of your income and then giving the remainder to charity.

8 | Family Money
Honesty, honesty, honesty. That underlines this entire chapter. If you’re deceptive about your money with yourself, you’re going to wind up in financial trouble. If you’re deceptive with your spouse, you’re endangering that person’s financial future and doing what you can to make sure they don’t trust you when this duplicity is discovered. Honesty makes it all better – if you make a spending mistake, admit it.

9 | Health Care
Here, the politics come out a bit again with some discussion of the upcoming health care changes in the United States – something I’ve been hesitant to talk about because I’m pretty confident that what we actually have in 2016 or so won’t look like what we think it’ll look like right now, so why speculate? Still, I do agree with Romans that changes in some regard are coming, and I also agree with her that health care expenses are a huge problem. The best thing you can do is stay active and focused on your own health – eat well, get exercise, and do what you can to stay healthy.

10 | Small Business
A good small business rests on a good business plan, good relationships with the community, and startup funds that aren’t personally strangling you or strangling the business. If you have those elements in place, you’re much more likely to succeed than if those elements do not exist.

11 | Government
Quite frankly, I didn’t like this final chapter. It provided a healthy dollop of politics in a book that didn’t really need them, and that’s my biggest criticism of the book. Although I enjoyed pieces that showed how government and personal finance are connected, I didn’t like when the book kept going and moved into the stuff of political debates, which are endless and divisive. You’re not going to convince a conservative to be a liberal and you’re not going to convince a liberal to be a conservative. Rather than demonizing each other, let’s seek out some common ground and focus on making that common ground an absolute home run instead of arguing about minor social issues while trillions of taxpayer dollars vanish down a rathole.

Is Smart Is the New Rich Worth Reading?
If you can get past the politics, Smart Is the New Rich is a very solid, well-written, entertaining, and thoughtful general personal finance book. It ties specific personal finance issues to some general societal concerns quite well.

I just wish the author had chosen to keep the more politically-edged elements out of the book. While some will enjoy them, I just felt that it was out of place and is likely to distract some from the good personal finance message in the book.

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  1. Dawn says:

    I’ve watched her in the morning and haven’t always liked her political bias, but was going to try her book anyway, until now. Personal finance is personal and political bias should rarely, if ever, show up.

  2. Michelle says:

    I don’t get #6 about buying a home. How does buying a home ensure a better commute? How does buying a home mean I’m now cooking at home? I rent and have a great commute and cook my meals at home…am I missing something?

    I bet there are a lot of people who buy homes leading to a worse commute because they bought what they could afford and it ended up not being as central as when they rented.

    Rentals do have kitchens…why would someone who never cooks in their rental suddenly start cooking in a home they own?

  3. Kara says:

    @Michelle said exactly what I was going to say.

    #6 is patently stupid. I work with people who currently commute nearly 2 hours because they bought a house several years ago, changed jobs, but couldn’t afford to sell their house to move closer to their current job.

    As far as cooking … I rent my place and I cook at home and entertain at home regularly. What on EARTH does owning a home have to do with cooking and entertaining?

  4. moom says:

    So is the political angle left-wing or right-wing? I also didn’t get the comments about buying a house.

  5. Adam P says:

    Could you re-write #6, as it doesn’t make any sense left as is. Thanks:

    “The key thing to remember is that you begin to make money the day you buy your home.”

    Unless the home loses value, or the cost of interest and property taxes and condo fees is higher than the cost of renting, in which ase you lose money the day you buy your home.

    “You’re now able to have a better commute.”

    Unless you buy a house further away from your job than when you rented. Which is quite likely.

    “You’re more able to cook meals at home and to entertain at home.”

    Things impossible to do when you rent a home…? What are you smoking? Can I have some?

    “Don’t focus on “turning” a big profit on your home because, frankly, it’s not realistic. The idea that you can turn a huge profit on your home comes from the housing bubble, which was a period of unreality that we’re still reeling from.”

    This is fine, but doesn’t it contradict the first sentence of this section?

  6. Johanna says:

    “Rather than demonizing each other, let’s seek out some common ground and focus on making that common ground an absolute home run instead of arguing about minor social issues while trillions of taxpayer dollars vanish down a rathole.”

    Isn’t the last part of this sentence just as much of a political position as any of the “political debates” that you’re railing against? I mean, it’s fine to have political opinions, but expressing your political opinions in the same breath as you say other people shouldn’t be expressing theirs is a little bit hypocritical.

    And I’m really scratching my head over what you mean by “minor social issues.” Do you mean things like repealing Don’t Ask Don’t Tell? You realize, don’t you, that you only have the luxury of thinking of that as a “minor” social issue because you yourself are not gay? No social issue is minor to the people that it affects.

  7. Johanna says:

    And which trillions of taxpayer dollars would you categorize as “vanishing down a rathole”? Have you scrutinized the federal budget and identified trillions of dollars that are obviously going to waste? If you have, I’m sure John Boehner and Eric Cantor would love to hear from you, so they could actually have an answer when people ask them what spending they intend to cut. And if you haven’t, then you have no idea what you’re talking about.

  8. Gretchen says:

    We have entertained more in our apartment, then we have in our house.

    Not to mention “eating well and staying active” doesn’t solve every health problem.

  9. BirdDog says:

    Cooking more because you buy a house? Better commute? These things have been true for Trent but not necessarily for other folks. This is yet another example of why writing in second person ruffles feathers from time to time. The “you” that occurs so often in Trent’s blog (41 uses of you, your, yourself, and you’re in this review), takes on too much of a preachy, self-righteous tone. First or third person is much easier for readers to digest without feeling as though they are being lectured.

  10. marta says:

    No kidding, Johanna.

    Nearly every time Trent talks about politics, his position seems to be that everyone else should shut up and stop whining. “Minor social issues”… that’s rich and really smacks of the privilege that Trent is often so loath to recognise.

  11. Charles Cohn says:

    I was put off by the suggestion that you should give 10% of your income to charity. I personally refuse to give at all. There is no reward for giving and no punishment for not giving.

  12. deRuiter says:

    “let’s seek out some common ground and focus on making that common ground an absolute home run” Oh you’re one of those wishy washy, “can’t we all get along” “moderates.” There is NO COMPROMISE. Either you want less government, less taxes, less taking from the productive and giving to the non productive (which would encourage them to work for themselves instead of producing children as a farm crop and generational welfare), or you want Socialism / Communism where the productive become less productive as they realize they don’t want to work to subsidize a bunch of single women who crank out illegitimate children by multiple fathers who only appear on the scene at the first of the month when the welfare checks, ADC checks, section 8 support, food stamps and free health care materiailize. “Capitalism is the unequal distribution of wealth and socialism is the equal distribution of misery.” We are seeing where the Socialist utopian dream is leading in Europe, why are 20% of the american population determined we should do the same destructive thing? “The best thing you can do is stay active and focused on your own health…” Actually the BEST thing you can do health wise is to marry a teacher or some other government employee and magically have the private sector pay extra taxes so you get free health care like Trent.

  13. deRuiter says:

    Thank you Trent for managing to give the essence of the book’s eleven chapters in one column, good job!

  14. spaces says:

    deRuiter, I realize you’re the type that does not want to be confused by facts, but you should look in to what government employees pay for health insurance. Premiums were raised and benefits slashed across the board when we first began to grapple with the crippled state of the economy left behind by the Bush years.

  15. Stephanie says:

    @12–Wow, I am a teacher and believe me, I pay for my health care. In fact, my health care is so expensive that I can’t afford to put my husband on the policy–so much for him marrying me for a free ride. Also, what’s happening in Europe is that the various governments spent too much money and now the taxpayers don’t want to repay the debt that was forced upon them. That same thing is happening here and BOTH parties are responsible for enslaving the country with more debt than we can handle.
    @Johanna (#7)–Trent might be talking about the “trillions of dollars” that the Federal Reserve gave out during the bailouts. When he was questioned about it, Bernake said that he didn’t know where all the money went. It has since come out that the Fed gave taxpayer money to foreign banks and private companies.

  16. DOT says:

    #14 Spaces.
    My son works for the state and yes his premiums were raised.. from zero to $ 8.00 ( yes, $8.00 dollars)a month total for medical, dental, life, long and short disability. At $8.00 per month your comment does not hold water.

    Completely agree with your comment deRuiter.

  17. Johanna says:

    @Stephanie: The money given out as part of the Troubled Asset Relief Program (the “bailout”) didn’t even amount to one trillion dollars, let alone trillions, plural. And most of that money is on track to be paid back, or has been paid back already. The most recent estimate of the net cost to the government is about $30 billion. That’s still a lot, but as the price to be paid to keep the global economy from going up in flames, it’s a relative bargain.

  18. Stephanie says:

    Actually the Fed just released documents that give the amount of the bailout at $3.3 trillion (trillion!) dollars. I would post a link to the inf,o but then my comment would be stuck in moderation. Google “fed gives money to foreign banks” and all the stories should come up. Previously, the amount of the bailout was kept secret–probably because most Americans would be upset to learn that their tax dollars were given to foreign banks and private companies…does McDonald’s really need tax money to stay solvent?? Verizon, Harley-Davidson and General Electric all got bailout money too. Would the global economy “go up in flames” if McDonald’s or Verizon went under? And no, the money isn’t on track to be paid back. There was another TARP loan given out to companies like GM–then GM made those commercials talking about how they gave the original loan back—yeah, ’cause they got more loan money to use to pay back the original loan. It’s a scam and we are the ones who will end up paying for it.

  19. Johanna says:

    @Stephanie: Again, you’re talking about loans, not gifts. Specifically, you’re talking about very short-term loans of the type that businesses take out all the time to cover short-term fluctuations in their liquid assets (like when they have to pay all their employees at once on payday). In the crisis of late 2008, banks were reluctant to make loans like that – and that’s a big part of what the panic was all about.

    The danger was not that a company like McDonald’s would go bankrupt – presumably, the overall net worth of McDonald’s is and has always been positive. But most of that net worth is tied up in illiquid assets and isn’t immediately available to do things like paying employees or paying ingredient suppliers. The danger, rather, is that McDonald’s employees start finding that their paychecks are bouncing. And don’t you think that would have set off a big wave of panic?

    Was it right for the Federal Reserve to make all the loans that it did? I don’t know enough to answer that question. But it’s not like $3 trillion just vanished into thin air. Really, it’s not. (And if you want to convince me that it is, you’re going to have to cite a more credible source than “those GM commercials.”)

  20. DOT says:

    Oh Johanna… your living in your own made up complacent world…

  21. Stephanie says:

    But we’re also talking about loans of taxpayer money that were given out without full disclosure. Ben Bernake sat in front of Congress in February 2010 and said that the Fed did not give bailout money to foreign banks. Now after being pressed about the issue for all these months, it was finally revealed that the Fed DID give money to foreign banks. $3.3 trillion dollars of our money was given out without any transparency about who was getting the money….
    The American people were lied to once (countless times, really) so I don’t have any faith that we won’t be lied to about the bailouts being paid back. How will you know if all this money gets paid back? (For the longest time, we weren’t even told where all the money went in the first place) Are you just going to trust that it gets paid back because someone said it did? Until there’s proof that it was paid in full, then it is kind of a gift. Remember, you were lied to once, why would you trust that those same liars are going to tell you the truth now?

  22. Johanna says:

    @Stephanie: What evidence would you accept as proof that the loans have been/are being repaid? If you’re going to regard the Fed as a bunch of lying liars who can never be trusted again, whose word would you trust?

  23. Joan says:

    #22 Johanna: McDonald’s employees were never in danger of losing their paychecks. They are paid by the local owners of McDonald’s. It was the big corporate cats who got the bailout. Any business owner knows that you keep a certain amount liquid to pay expenses. The local owners pay their dues to corporate McDonald’s every month. There was no reason for a bailout. There is really a lot of waste in government. Believe me they can easily find many places to cut expenses except the social security that comes out of employees paycheck every payday. Maybe flying to campaign for your party at taxpayers expense every day for over a month could be considered waste. In my household a dollar here and a dollar there easily add up to a hundard dollars. In the government a million here and a million there easily add up to a billion and etc.

  24. Marcey says:

    Appreciate these reviews as always. I will admit to being amused to see a partisan political ad both in my email and on this site given the chief concern about the book ;).

  25. DOT says:

    Yes, I also remember seeing Alan Grayson’s mug all over this site when I would log on in September and November. Trent’s in Iowa(?) and I am in Florida, and wouldn’t you know Alan Grayson was the democratic incumbent for our 8th congressional district.(He lost to Republican Dan Webster.)
    Trent’s comment on the book..”I just wish the author had chosen to keep the more politically-edged elements out of the book….I just felt that it was out of place and is likely to distract some from the good personal finance message in the book.” must just be lip service. Trent obviously doesn’t mind mixing his political elements with this blog as long as he is making some money off of them.

  26. Stephanie says:

    @Johanna (#22):
    That’s a really good question and unfortunately, I don’t think that I have an answer for you. I just feel like Americans were taken advantage of in the system and I am really suspicious about anything that anyone says now. I think there needs to be an independent audit of the Federal Reserve by a group of people that have nothing to gain or lose by uncovering the truth. I guess the problem would be finding a group of people to do that–it seems like almost everyone has an agenda…

  27. spaces says:

    DOT have you ever heard the phrase anecdotes are not data? It means that your personal experience is just that — your PERSONAL experience. Mileage varies for others. This is basic math.

  28. Kate says:

    deRuiter and DOT: I am a teacher and my premium for insurance is MANY times more than $8.00 month. The premium and the deductible rises every year and our retirement is in danger. Take my advice…don’t marry a teacher.

  29. David says:

    I am not sure what the policy on website links is, but I will attempt to mention ProPublica, which appears to contain some data that is likely to be reasonably close to the truth.

    Stephanie, the chairman of the Federal Reserve is called Ben Bernanke, not Bernake. It is certainly possible that he does not know what he is doing, but if you want to accuse someone of not knowing what he is doing, you should at least get his name right or you might be suspected of not knowing what you are doing yourself.

  30. Briana @ GBR says:

    Now that I know what to expect (politically) I’ve added the book to my wishlist. Looking forward to reading it soon.

  31. Johanna says:

    @Joan: The McDonald’s paychecks were just an example. The point is that many businesses rely on the availability of short-term credit for their day-to-day existence.

    I stand by my assertion that anyone who thinks there are trillions of dollars of obvious waste in the federal budget doesn’t know what he’s talking about. A trillion dollars is not “a million dollars here, a million dollars there.” A trillion dollars is a million times a million dollars. If you’re trying to come up with a trillion dollars in spending cuts by piecing together million-dollar examples, you’ll need to come up with a million of them. Good luck with that.

  32. Stephanie says:

    You do understand that the U.S. debt is over 13.4 trillion (trilion!) dollars…that’s money that the government owes…where did it all go? How is it that I scrimp and save every penny…always asking if something I am buying is a worthwhile purchase…and the government is spending trillions of dollars that they don’t have and everyone seems to be ok with it? We need to e more critical of the government’s spending habits just as we are critical of our own–because if the government can’t pay off its own debts, you know it will be us that has to foot the bill.

    @David–oops, I spelled the guy’s name wrong. Just a comment on the website you suggested–I’m sure they are doing their best to track all of the bailout money that was spent. But it’s pretty hard to track money when BEN BERNANKE is openly lying about what was spent and who it was given to.

  33. David says:

    This figure of 13 trillion dollars looks to me like the total US public debt. This isn’t anything very much to worry about – it is less than 100% of GDP after all, and no modern national economy could function without large-scale public debt. As to “where it all went” – it hasn’t gone anywhere, because (for example) you have not yet collected your pension.

    Certainly it can be argued that we could be more critical of government spending. The problem with what Johanna says is that what to you is “obvious waste” is to me “essential provisioning”. For example, the USA spends about $50 billion annually on nuclear weapons. It is a very safe bet indeed that the USA will not actually use a single nuclear weapon this year (just as neither it nor any other nation has done since 1945). Was that $52 billion “obviously wasted”?

  34. Johanna says:

    @Stephanie: Where did it all go? This might give you some idea: Ten years ago, the national debt (however you want to measure it) was less than half of what it is today. More importantly, the budget was balanced, and we were actually paying down a bit of the debt. Then George W. Bush came along. He signed into law two massive tax cuts that weren’t offset by spending cuts. He started two wars without paying for them with tax increases, offsetting them with other spending cuts, or having the foggiest idea how he was ever going to end them. He also signed into law the Medicare prescription drug benefit, again without paying for it.

    When the tax cuts were first passed, it was on a temporary basis – they’re due to expire at the end of this year. If that were to happen, tax rates would go back to where they were under President Clinton (you know, in the 1990s, when small businesses weren’t hiring at all, and nobody was creating any jobs).

    Now, there are some in Congress who want to make all the tax cuts permanent – at the same time as they pretend to wring their hands and gnash their teeth over the deficit and the debt. But balancing the budget without raising taxes is going to be all but impossible. How do I know this? Because when said Congresspeople are asked where they intend to cut spending in order to reduce the deficit, they don’t actually have an answer. If they do go into specifics at all, it’s to name small programs – a million dollars here, a million dollars there – that can’t possibly make a dent in the budget anywhere near the size of the giant whole they intend to blow in it by extending the tax cuts.

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