Yup, another review of this personal finance best seller. Why would I bother reviewing something that has been read by a million bloggers and reviewed too many times? Simply because it worth it! Since I started my quest in the financial world, I keep hearing about this book and how good it was. Since I had nothing to do (does this really happen?), I bought the book and opened it. It took me two days to devour and it was absolutely delicious (the coffee and cheese cake or the book? I won’t tell you!).
I was kind of curious to see if this book could bring something more to my existing financial plan. Well it did! While The Rich Barber’s rules are fair and simple, I would like to add some TFB spices in the melting pot:
#1 The 10% rule
Pay yourself first. If there is one rule you need to remember, it is this one. Take an automatic withdrawal of 10% of your pay cheque, and invest it in mutual funds. There is nothing sexy with a “Pay Yourself First” plan and definitely nothing exciting about systematic investment. However, it works perfectly if you want to get 1M$ in 30 years. I basically pay less on my mortgage and use the Smith Manoeuvre for a good part of the 10%.
#2 Get insured
The very first time I had concerns about insurance was when we find out that my wife was pregnant of our first son. This is where I realize that a family needs proper coverage. On the other side, if you are all alone and have no dependants, there is no point of getting a huge insurance. Insurances have not been created to make people rich but to financially cover for the lost of an individual.
#3 Get a will
Then again, this is crucial when you have a spouse or kids. Nonetheless, everybody should have a notarized will and close family members and friends should be aware of where is your important paperwork.
Yikes, the 10% was not for my RRSP? No, the 10% of my income was for the vacation property, my trip to
#5 Buy a property
If there was one thing that caught my attention from this book was the fact that, in finance, you are always better be the owner than the lender. Be the owner of your investment, don’t lend money to banks. Buy a property; don’t pay a rent to a landlord. You could technically rent and invest the difference; however chances are that you will do something else with this money!
#6 Be Frugal
This was a well debated subject in the book. Basically, if you follow the 10% rule and you contribute to your RRSP, budgeting and being frugal will not become the key to your financial freedom. This is a very good thing for me as I always have a hard time containing myself!
#7 Investments and taxes
There is a tight relationship between those two terms. The main question was the following: “are you better off paying your mortgage down or investing more money than your 10%?”. This is where something obvious hit me in the face: you are paying mortgage interest with after taxes money. Therefore, paying off your mortgage gives you a net saving of 6%. In order to make the equivalent return on the market, you must make 8,57% (after commission fees or MER’s) with your investments. Chances are that you are better off paying down your mortgage and invest the difference later on.
Oh man! Do I have to put money aside for my kids too? Is this will ever end? In fact, the book suggests that you take your kids allocation and invest it into a RESP. This is quite simple and quite profitable.
I really liked the book overall because it is a really good recap of what I had learned so far. The things was that I could have learn all this reading the book in 2 days instead of taking 4 years to think, experiment and establish priorities in my financial plan!
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