Scott Galloway uses a unique style in his book The Algebra of Wealth: A Simple Formula for Financial Security .  Rather than offer generic advice to choose a career that pays well, Galloway takes the tone of someone telling you privately what he really thinks of various career options, for example.  He takes a similar approach to other topics as well.  Readers may not agree with all of his advice, but they can’t say his opinions weren’t clear.   The book is divided into chapters on focus, good habits, and avoiding mistakes; choosing a career and developing skills; spending, saving, and budgeting; and investing.  The blunt commentary on choosing a career was the most interesting part of the book.   For those concerned that this is some sort of math book, it isn’t.  The few formulas in the book are mostly not intended to be taken literally.  For example, “focus + (stoicism x time x diversification),” and “value = (future income + terminal value) x d...

As we’ve learned in recent years, inflation can rise up and make life’s necessities expensive.  Despite the best efforts of central bankers to control inflation through the economic shocks caused by Covid-19, inflation rose significantly for nearly 3 years in both Canada and the U.S.   Uncertainty about future inflation is an important risk in financial planning, but most financial planning software treats inflation as far less risky than it really is.  This makes projections of the probability of success of a financial plan inaccurate.  Here we analyze the nature of inflation and explain the implications for financial planning. Historical inflation Over the past century, inflation has averaged 2.9% per year in both Canada and the U.S.(*)  However, the standard deviation of annual inflation has been 3.6% in Canada and 3.7% in the U.S.  This shows that inflation has been much more volatile than we became used to in the 2 or 3 decades before Covid-19 appeared...

Kelley Keehn’s recent book Rich Girl, Broke Girl uses interesting fictional stories about women to teach personal financial lessons.  Keehn understands the circumstances, pressures, and emotions that drive women to make poor financial choices.  The advice in this book is packaged in a way that makes it an easier read for those who’d rather focus on life than money. Keehn uses the stories of ten women to illustrate different types of financial mistakes and how to fix them.  Each chapter begins with the history of a woman whose financial life isn’t going well.  It then moves on to what she did wrong, some financial lessons, and how she can fix her troubles.  The chapters end with an update on how the woman is doing now that she has made some positive changes.  The anticipation of getting back to the story made it much easier to read the ‘lesson’ part of each chapter. The most interesting lesson to me was about the woman who let a casual partner move in and s...

The world has changed over the past 30 years or so, and the advice baby boomers give their adult children isn’t always relevant in today’s world.  Money reporter Erica Alini offers a millennial’s view in her book Money Like You Mean It: Personal Finance Tactics for the Real World .  She delivers on her promise to offer useful financial advice for the world that millennial’s live in, and her writing style makes the book easy to read. Millennial Challenges Alini devotes a significant chunk of the book to the challenges millennials and women face.  She covers the familiar themes of high housing prices and student debt.  She also covers an under-appreciated problem that millennials face more than boomers did: “easy access to credit” and aggressive marketing to get people to use that credit.  Borrowing for any aspect of your lifestyle has been normalized.  Thirty years ago, people who never ate out and had no car weren’t seen as freaks.  Marketing has rampe...

We spend a lot of time worrying about interest rates, stock markets, inflation, gold, and cryptocurrencies, and how they affect our investment portfolios and personal finance.  Here I explain how I think about these issues. Are interest rates going up? I don’t know.  But the answer can’t end there.  We have to make choices about our mortgages and investments, and interest rates matter.  Some will express predictions confidently, but they don’t know what will happen.   I prefer to think in terms of a range.  Let’s say that we think interest rates will average somewhere between 0% and 7% over the next decade.  This range is wide and reflects the fact that we don’t know what will happen.  Because current interest rates are still low, the range is shifted toward rate increases more than decreases.  The goal now is to balance potential downside with potential upside over this range. With mortgages, the main concern is the downside: will we be okay...

Even smart people do some dumb things with their money, according to Jill Schlesinger, a Certified Financial Planner and media personality.  In her book, The Dumb Things Smart People Do With Their Money , she goes over thirteen common costly mistakes.  It’s an easy read that might change your mind about a few things.  The focus is on the U.S., and some detailed parts aren’t relevant to Canadians, but the broad themes are still relevant. The parts of the book I liked best dealt with buying financial products you don’t understand, buying a house in situations that clearly call for renting, taking on too much risk, indulging yourself too much during your early retirement years, not having a will, and trying to time the market. On the subject of buying investments we don’t understand, the author says “There just isn't any need to invest in gold,” and “It’s usually a crappy investment.”  On reverse mortgages, some predatory lenders “go to extraordinary (and sometimes ille...

Back in the 1920s, George S. Clason wrote a set of pamphlets about financial success using stories set in ancient Babylon.  The book The Richest Man in Babylon gathers these pamphlets together and has sold millions of copies.  People learn better from stories than from simple facts.  This book’s interesting stories are a compelling way to internalize the basics of personal finance. The version I read had an introduction by Suze Orman.  In addition to commenting on the book’s enduring lessons, she observed that “every character in the book is a man.”  “That’s not a reason to dismiss the heart of the book.”  “If you find the gender bias annoying, just recast all the characters in a way that enables you to read and absorb the wisdom.”  In my case, I found the repeated references to slaves more jarring than the gender bias, but I agree about the financial wisdom. I won’t try to summarize any of the stories, but tales of kings, camels, captures and escapes...

When I first picked up Jacob Lund Fisker’s book Early Retirement Extreme , I expected it to be similar to other early retirement books I’ve read, but it isn’t.  This is a thoughtful philosophy book that lives up to its subtitle A philosophical and practical guide to financial independence .  If I had read it decades ago, I likely would have retired even sooner. The book begins with the claim that modern life is like the movie The Matrix .  We can’t see the crazy way we live our lives as wage slaves.  We give up our most productive hours to a job that leaves us with too little energy to do much other than waste money on stuff we don’t have the time to enjoy.  If your instinct is to disagree, consider reading the book; Fisker makes an excellent case. “Ignore most of the personal finance books out there.  They only explain how to play the game by the rules.  Instead, use the rules to play a different game” outside the Matrix. It’s easy to pick out parts o...

There aren’t many financial gurus willing to call out financial companies by name for their bad behaviour, but Ramit Sethi is one of them.  In his book I Will Teach You to be Rich , he promises “a 6-week program that works,” and he includes advice on which banks to use and which to avoid.  The book is aimed at American Millennials; Canadians will learn useful lessons as well, but much of the specific advice would have to be translated to Canadian laws, banking system, and account types.  The book’s style is irreverent, which helps to keep the pages turning. It may seem impossible to fix a person’s finances in only 6 weeks, but this is how long Sethi says it will take to lay the groundwork for a solid plan and automate it with the right bank accounts and periodic transfers.  The execution of the plan (e.g., eliminating debt or building savings) will take much longer. Sethi is rare in the financial world because he will say what he really thinks about banks.  “I h...

A few years ago, Robb Engen wrote an article with the same title as this one .  He convincingly defended his method of calculating net worth.  I don’t think he’s wrong, but his method doesn’t work for me.  The reason is that he calculates his net worth for a different purpose than I do. The idea of Assets - Liabilities = Net Worth is simple enough.  What’s the debate?  It turns out that what to count among assets and liabilities isn’t always obvious.  Robb says “The correct formula for calculating net worth is the one you use consistently over time to measure progress. That’s it.”  Implicit is the idea that your goal is to measure progress.  At my stage of life, my goal is different. When I was younger my main purpose in calculating my net worth was to measure my financial progress.  However, as I approached retirement I became more interested in how much I could safely spend each month during retirement.  This different goal puts new r...

Dave Ramsey is a very popular radio show personality who offers personal financial advice.  He captures that advice in his book The Total Money Makeover , Classic Edition.  Ramsey says the formula for financial success isn’t complex, and that there is little in the book you can’t find elsewhere.  “Personal finance is 80 percent behavior and only 20 percent head knowledge.”  As a result, his book is long on motivation, and short on specifics of how to follow his “baby steps” to financial freedom.  This focus on motivation may be what his target audience of people who handle money poorly need most.  While most personal finance experts discuss the dangers of debt, Ramsey takes debt aversion to a new level, which is also likely good for his target audience. It’s not hard to find things to criticize about Ramsey’s approach.  Many readers may find the frequent bible references off-putting, particularly toward the end of the book.  The religious content ...

The first edition of the best selling personal finance book Your Money or Your Life , written by Vicki Robin and Joe Dominguez, came out nearly 30 years ago.  In 2018, Robin revised and updated it, and added a foreword by Peter Adeney, a.k.a., Mr. Money Mustache.  The book lays out a 9-step plan to fix your finances.  Only the last two steps deal with investing, so the main focus is on transforming the way you think about spending and earning money. Robin’s passion for helping people comes through loud and clear.  Part of her motivation for rewriting the book came from thinking about rampant student debt: “What kind of society turns its young people into a profit center for the debt industry?”  We work and waste our money so that “We are sacrificing our lives for money, but it’s happening so slowly that we barely notice.” In the original version of this book, all 9 steps were simple to understand and perform.  In the update, the final two steps related to i...

Ben Stein is an economist, movie and television personality, and prolific writer on financial matters.  I recently read his book How to Really Ruin Your Financial Life and Portfolio .  Stein has written extensively about the smart ways for most people to invest, just to watch so many of these people lose their way and lose money.  This book pretends to advise people to make these common mistakes, but is really intended to inoculate investors against these mistakes. The book covers a wide range of bad investment ideas including trading frequently, forex trading, stock-picking, market-timing, going with your gut, hedge funds, commodities, margin, short-selling, believing financial media “experts,” and many more.  After explaining why these ideas don’t work for other people, he assures the readers that they’re special and will succeed anyway. In discussing the excitement of commodities trading, Stein’s understatement about some personal experience made me laugh: “Your h...

I recently saw the headline Five warning signs you are in over your head financially , by Pattie Lovett-Reid.  I saw it as an opportunity to learn more about how to help people avoid financial trouble. Here is a summary of her list of warning signs: You are ignoring your finances. Your finances are giving you a lot of anxiety. As soon as you get paid, all of your money is spoken for, with the majority of it going to debt service. Your creditors are calling non-stop. You are borrowing from Peter to pay Paul. I was expecting warning signs that you’re headed in a bad direction, but these seem to be signs that you’re already in serious trouble that will be difficult to fix.  In a similar vein, here are my warning signs that you’ve got health problems. Most of your blood is on the ground. You haven’t breathed in a few days. You’ve been cremated. My point is that I was hoping for more subtle signs that your finances are heading in the wrong direction.  Catching the problem earl...

For some reason, people seem wired to want to take their CPP and OAS benefits early, myself included. They grasp for reasons to justify this emotional need even though a rational evaluation of the facts often points to delaying the start of these pensions to get larger payments. I recently read about another emotional reason to justify taking CPP and OAS early. We can choose to start taking CPP anywhere from age 60 to 70, but the longer we wait, the higher the payments. Less well known is that we can start taking OAS anywhere from age 65 to 70 with higher payments for waiting loger. It’s hard for us to fight the strong desire to take the money as soon as possible, and we tend to latch onto good-sounding reasons to take these pensions early. But the truth is that most of us have to plan to make our money last in case we live long lives. Taking CPP and OAS early would give us a head start, but the much-higher payments we’d get starting at age 70 allow us to catch up quickly. If...