Stop over thinking your money

Recently, Preet Banerjee has achieved a lot of success with his new book STOP OVER THINKING YOUR MONEY.  In fact, he hit the Top 20 in-store, and online bestseller list for chapters / indigo.

I was fortunately to get a copy of his book so I took the opportunity to read it while on a 3 day business trip (It seems like the only time I can catch up on reading).  I'm glad I did.  The recognition and success he is getting is well warranted.

My favourite aspect of the book is it focuses on good old fashioned common sense.  Unfortunately, when it comes to personal finance, common sense is not common enough.

About the book

STOP OVER THINKING YOUR MONEY has 8 easy to read chapters.  The first 5 chapters are devoted to his Five simple Rules of Financial Success.

Chapter 1.  Disaster-proof your life

Chapter 2.  Spend Less than you earn

Chapter 3.  Aggressively pay down high interest debt

Chapter 4.  Read the fine print

Chapter 5.  Delay consumption

The other three chapters dig into three common financial topics in a little more detail

Chapter 6.  Investing Basics

Chapter 7.  Financial Advisors

Chapter 8.  Insurance 101

My notes

Preet has a great way with words and I found myself taking notes as I read through his book.  I thought I would share some of my notes with you as a means to review my favourite content in the book:

Page 1 – In order to be in control of your money, you just have to get the fundamentals down pat.  If you can get the fundamentals right, you will be better off than most people.

Page 3 – Financially, you only need to be disciplined for a short period of time because once you get started down the right path, it gets easier.

Page 4 – Put $200 per month into a high interest savings account that pays a measly 1.5% and you will have almost $26,000 after 10 years.  Invest only $100 per month and to get a comparable outcome, you need an annualized return of more than 14% per year on your portfolio.  This is highly improbably given the history of the stock markets over 10 year periods.

Page 5:  When you are just starting out, how much you save is far more important than trying to invest and outperform the stock market.  To be an investor, you must be a saver first. Saving is simple – either you do it or you don't!  Investing is infinitely more complex.  This is a perfect example of the way most people complicate money unnecessarily. Just learn to do the simple things well.  Just learn to get the basics right.

Page 14:  Four basic ways to protect yourself against various disasters:

  1. Disability insurance
  2. Life insurance
  3. Emergency Fund
  4. Will, Enduring Power of Attorney and Personal Directives

Page 23:  I love that Preet started talking about Claims based underwriting versus Application based underwriting. Here's what he says,  “I hope the concept of figuring out whether someone qualified for insurance after they are no longer living strikes you as odd.  On occasion, it has led people to pay life insurance premiums for years only to discover that when they die, their beneficiaries do not get the lump sum death benefit that was expected.  Underwriting after you die is the worst time to find out that you didn't actually qualify for the coverage.”

Page 45:  Spend Less than you earn – “Spending less than you earn is the cornerstone of financial stability.  It makes possible the elimination of money stress and the beginning of wealth creation.  Having money left over at the end of the month instead of some month left over at the end of the money.

Page 67:  To save or not to save. The problem is the average Canadian Household has been gradually spending more and saving less.  The Vanier Institute of the Family's research reveals that the ration of debt to income has been steadily rising for the past 20 years from 93% to 150%.  The savings-to-income ratio shows the opposite trend decreasing from 13% to 4.2%.

Page 74:  Credit cards have some fine reward programs, but they work out to an equivalent of 1% to 2% of what you spend.  Carry a balance and you could be paying 28% interst in perpetuity.  In that case, those incentives to use your credit card to earn points are costing you money, not making you money.  So forget about rewards programs as a reason to use credit cards if you carry a balance.

Page 78:  Not everyone that consolidates debt has learned their lesson.  In many cases, they've just given themselves more rope with which to hang themselves. They cleaned up their credit card debt only to rack it up again.  Wash, rinse, repeat.  That's great advice for washing your hair but awful advice for managing your debt.

Page 79:  As with all of the fundamentals of managing your personal finances, the theory and formulas are far from being rocket science.  Unfortunately, it's not the theory that trips us up:  it's the implementation.  You have to understand that your life is going to have to change if you want to see actual change.  Information is useless until you exert discipline and self-control in order to follow the right steps.

A numbers-based solution to a psychologically rooted problem won't resonate with some people.

If you want to spend more, save more first.  If you understand and embrace this fundamental precept – that you should be earning interest instead of paying it – you'll be better off than most people.

This is about half of all the notes that I took as I read the book so there's a lot more nuggests of wisdom in this book.  Buy it! Read it!  Give it to someone you love!

Written by Jim Yih

Jim Yih is a Fee Only Advisor, Best Selling Author, and Financial Speaker on wealth, retirement and personal finance. Currently, Jim specializes in putting Financial Education programs into the workplace. For more information you can follow him on Twitter @JimYih or visit his other websites JimYih.com and Clearpoint Benefit Solutions.

2 Responses to Stop over thinking your money

  1. Hi Jim

    You read the book which is great!

    My advice is go to your library there are lots of great financial books to read for free.

    Preet’s book might be on th shelf.

    I find a lot of these books regurgitate the same material!

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