Several days ago, I wrote an article entitled Why I’m Ignoring the Stock Market Downturn that generated some interesting discussion, but I wanted to highlight one question in particular.
At one point in the article, I made this statement:
What I do read are books on personal finance and investing. Books tend to have a long-term perspective on investing and personal finance. They also have the space to make a reasoned argument and, because they’re written over time, they’re not nearly as prone to be influenced by the ups and downs of the stock market. Of course, some books do fall prey to speculation, but those books are pretty obviously flawed. […] Those books take a very long-term perspective, a whole-life perspective when it comes to personal finance — something sorely missing in much of personal finance media. […] After all, I’m more concerned with what my investments and finances will be like when I’m 70 than what they’re going to be like next month, because I’ve worked hard to build a life foundation that makes me very sure that things will be quite stable a month from now.
I went on to briefly name a few, but the next day Janine sent me a simple question on Facebook:
Do you have a list of money books that talk about the kind of “whole life” perspective you mentioned in the article? I like to focus on the “20 years from now” as much as today, but it can be hard sometimes.
When I read this, several books immediately came to mind. I credit these books as being key in building my “lifelong” approach to personal finance. Here they are. I hope you get as much value from reading them as I have.
Your Money or Your Life by Joe Dominguez and Vicki Robin
If I can point to one single book that turned around my way of thinking about money, it’s Your Money or Your Life. This book singlehandedly shifted me from thinking about finances in terms of my next paycheck to thinking about my finances in terms of the rest of my life and what I wanted to achieve with those years.
The main premise of the book is that, for every dollar we earn, we spend some amount of our life’s energy and time, and that our goal should be to use as much of that energy and time for ourselves. The authors approach this idea from a lot of different angles, revealing how we don’t get as much value out of an hour of work as we believe that we do (via the “true hourly wage” concept) and how we misuse the resources we do generate in terms of the pleasure that we get out of our spending (via the fulfillment curve concept).
The solution provided by the book mostly revolves around mindfulness regarding spending. How much of your time and life energy are you really trading for this purchase? Could you get a better value by buying a different product or doing something different?
Much of the book focuses on spending significantly less than you earn in an effort to build toward a state of financial independence, where your income from your investments can pay for your living expenses for the rest of your life. This is achieved by being more mindful about everything that you spend money on, from the energy you use at home to your decisions about which product to buy at the grocery store, and then consciously putting aside the difference between your income and your spending for the future.
It’s a brilliant book that will make anyone who is willing to approach their finances in a thoughtful manner to reconsider a lot of the things they’re doing and the choices they’re making, not just from a dollars and cents perspective, but from a “what is the real purpose of all of this” perspective.
The Bogleheads’ Guide to Investing by Taylor Larimore, Mel Lindauer, and Michael LeBoeuf
There are a lot of layers to investing. Why are you investing? What is your risk tolerance? Are you living your life in a way to be able to have money for investing? What is your timeframe? What are your goals? How do you compare investments? That’s just the start, honestly.
Many investment books tend to tackle just some of those questions, and even among those books, many tend to focus on just the facts. They don’t explain how all of these things codify into an overall investment philosophy.
That’s exactly why The Bogleheads’ Guide to Investing succeeds. The book adopts an investment philosophy that utilizes index funds to keep costs low paired with fairly conservative investment options in order to keep money safe. The book spells out the reasoning behind this philosophy, then works through all of those questions to show how that philosophy is implemented. In a nutshell, the Bogleheads’ philosophy revolves around keeping investing costs low and investing in fairly low-risk things that don’t require micromanaging, mostly through spreading out your risk via index funds.
I can’t recall a book that walks through the entirety of an investment philosophy and how to implement it quite like this one does. Most books either just tell you how to invest without explaining why or stick with explaining the why without moving into how exactly to implement it. Even if you’re not completely on board with the philosophy in this book, simply seeing an investment philosophy clearly explained and then tied to the investment choices and the life choices of a person is still incredibly worth your while.
Early Retirement Extreme by Jacob Lund Fisker
Early Retirement Extreme is another philosophy-driven personal finance book, but this one is oriented around building a life with minimal expense with the purpose (at least in part) of decoupling yourself from having to work for a living as early as humanly possible.
As with the other books on this list, Fisker really takes a whole life approach to this philosophy. In fact, he digs deeper into how this idea stretches across your whole life than probably any other book. He’s not writing about an investment philosophy or a money philosophy here, but an entire philosophy for life, one that minimizes the amount of money you spend in an effort to meet your basic needs and maximize your personal freedom.
Because of that approach, virtually every page is full of material that will leave you thinking, from an analysis of what kind of housing you actually need and what elements are unnecessary to looking at the techniques you use for exercise and whether they’re a misuse of time, money, and resources in an effort to keep your body healthy. You can’t dip into this book for a few pages without walking away with a lot of food for thought, often about things you least expect.
If the idea of decoupling yourself from your job as quickly as possible sounds appealing and you’re interested in what that really implies for your entire life, both now and for the rest of your years, Early Retirement Extreme is a book you need to read.
The Four Pillars of Investing by William Bernstein
Unlike many investment books, the purpose of The Four Pillars of Investing isn’t to tell you exactly how to invest. Instead, it steps back from there and looks at why you would even want to invest and carries forward from that purpose to look at exactly how you should invest.
This knowledge is centered around four key principles:
- The Theory of Investing: “Do not expect high returns without risks.”
- The History of Investing: “About once every generation, the markets go barking mad. If you are unprepared, you are sure to fail.”
- The Psychology of Investing: “Identify the era’s conventional wisdom and assume that it is wrong. More often than not, it is.”
- The Business of Investing: “The stockbroker services his clients in the same way that Bonnie and Clyde serviced banks.”
The thing is, these principles make sense for investing and they also make sense in terms of everyday life. Rewarding things in life require some degree of risk, but you have a lot of control over the reward you’re shooting for and the risk you’re taking on. You should stick to your own game plan regardless of what everyone else is doing, and just because everyone else is doing something doesn’t mean it’s the right thing to do. Furthermore, you should recognize that anyone providing you a service from a for-profit company is doing it not just to make money, but to make as much as possible.
Those kinds of principles stretch far beyond investing. They’re about being smart when living in the modern world, and while Bernstein’s book is an excellent primer on how to invest for the long haul, the principles he touts are ones that make sense in other areas of life, too. That’s good material for life, not just material for making a buck or two.
A Random Walk Down Wall Street by Burton Malkiel
This book is probably the best explanation I’ve ever read for how the stock market works. There are so many people doing so many things all the time to affect the market that no one can keep track of all the factors, causing the day-to-day fluctuations to be largely random.
Malkiel spells all of this out with a great analogy that he calls the “random walk,” in that the stock market is akin to a person walking randomly back and forth on a sidewalk. However, over time, he’s gradually going to move in one direction due to some overall forces, much like the stock market grows over time due to improved worker efficiency.
It’s an interesting read, to be sure, but why does it fit here? It fits here because it provides a clear model for how investing, particularly in the stock market, actually works, and, more importantly, explains why you should use the stock market pretty much only for long-term investing.
The random walker is such a good, clear model for the stock market, and the stock market is going to be a part of most people’s investing strategy for their future. Understanding how it works is well worth your time.
The Bogleheads’ Guide to Retirement Planning by Taylor Larimore, Mel Lindauer, Richard Ferri, and Laura Dogu
Earlier on in this article, I pointed people toward The Bogleheads’ Guide to Investing as a strong all-around guide to understanding an investment philosophy and how exactly to implement it not just with your money, but in your life. As I stated earlier, the Bogleheads’ philosophy revolves around keeping investing costs low and investing in fairly low-risk things that don’t require micromanaging, mostly through spreading out your risk via index funds.
So, why recommend a second book? This book essentially takes the same focus as The Bogleheads’ Guide to Investing, but focuses entirely on the goal of planning for retirement. Many of the same approaches are used here as are used in the first book.
I include both books on this list for a couple of reasons.
First, this book essentially distills the focus of the first book down to a retirement-only focus. Many people only really care about investing with regards to planning for their retirement, so a book with that kind of focus is one that will have a lot of appeal for some people. Almost everything in this book has a retirement bent to it.
Second, given the specific focus of this book, it offers some insights and angles that wouldn’t really be useful in the other book. Part of that comes from the fact that there are new authors on board for this edition, meaning that, although the general philosophy is the same, there are some different insights and perspectives that don’t appear in the original volume (and vice versa).
In my eyes, if the primary focus of your financial thinking right now is centered around retirement at a traditional age (62-70), then this is the book for you. It takes a true whole-life approach to the topic, laying out an investment philosophy, how to implement that philosophy, and how to support that philosophy with day-to-day life choices.
The Millionaire Next Door by Thomas Stanley and William Danko
In a nutshell, The Millionaire Next Door is a summary of a giant mountain of surveys and face-to-face interviews that the authors conducted with people with a net worth of $1 million or more. The results of the surveys and interviews were interesting enough that the authors wrote a book on the topic, not only spelling out their results but also identifying some very interesting trends and commonalities among people who have accumulated that much wealth.
In short, millionaires on the whole are very different than what’s depicted in popular culture. Most of them live frugally, live in modest homes, drive sensible cars, and dress modestly, too. The people who drive flashy cars and live in expensive homes are often indebted and leveraged up to their eyeballs to afford it – they’re usually not relying on wealth, but the promise of future income.
Stanley and Danko take those results and use them to describe some very interesting broader patterns in the lives of those who do accumulate significant wealth and those who do not. It ranges from how they approach purchasing decisions (strong wealth accumulators approach purchases with research and a plan rather than impulsiveness) to things like raising children (strong wealth accumulators raise their children to not expect economic outpatient care in adulthood).
You can argue all day long about whether these trends are the cause of wealth accumulation or the effect, but I lean toward the cause – or, at least, the factors that the authors point out are indicative of character traits that lead to wealth accumulation. Putting in the work to cultivate some of the traits that Danko and Stanley discuss won’t just have an impact on your finances, but on your broader life as well.
The common thread running through each of these books is that personal finance isn’t just what you do when you define a budget or balance your checkbook or set up your 401(k). It’s an integral part of your life, wound through practically every decision that you make. Whenever you use time or energy or money, it has an impact on the financial outcome of your week, your month, your year, and your life.
The solution to navigating all of that effectively is to have a bedrock of smart values when it comes to using the resources in your life – your time, your money, your energy, your health, and so on. The more effectively you use those things, the more of your life you have left over to devote to the things you enjoy and truly care about, whatever those may be.
All seven of these books serve as a guide to living a more efficient life, in other words; a life where less of your resources are devoted to the things you care little about and more of your resources are devoted to the things you care most about. In the end, that’s the real magic of personal finance. It is much more than just a bandage you put over a financial wound. It’s a strategy for life, one that leads to more possibilities than you could ever hope for.
Head to your local library and give these books a try. You’ll be so glad you did.