Overall this book was kind of a mishmash of personal finance advice, not relating specifically to one topic such as index investing, value investing, growth investing, asset allocation, etc… Rather, it had trace elements of all these topics along with much needed common sense. Throughout the book you could tell that the author advocates passive index investing in an asset allocation suitable for the reader that is rebalanced occasionally. He gives down-to-earth advice that is chock full of common sense about saving regularly, starting early, assessing home wealth, and paying off debts.

For me, it was too basic because I already have marinated myself in these ideas over these last few years. I didn’t really learn anything new, but I highly advocate most U.S. consumers to give this book a go seeing how many of us have a savings rate at 5% or less. Common sense isn’t always so common.

However, one paragraph in the book did resonate with me:

We associate wealth with the trappings of wealth, including the designer clothes and the luxery cars. But these trappings aren’t a sign of wealth. Rather, they are a sign of money spent – and the people involved are poorer for it. In fact, the richest family in the neighborhood may live in the smallest house with the oldest cars. Their frugality allows them to save like crazy. I am not suggesting this is desirable. Neither spendthrifts nor misers deserve our admiration. Instead, we should strive to strike the right balance, spending our money on the things that are important to us, but also saving enough for our goals.

I wrote a post related to this topic previously, of when people brag about how much money they spent I don’t feel envious  but rather sympathy because all it means is they are accruing more debt and it would be even harder for them to escape the proverbial rat race. I guess this is why this paragraph from the book just pinged to me. In addition, I definitely believe in enjoying the Now while also making sure we can attain our future goals.

Here’s a listing of the chapters to give a better idea of what this book is about:

1. Introduction – Let the Rebuilding Begin
2. Our Finances Are Bigger than a Brokerage Account – Pondering the Paycheck in the Mirror
3. We Can’t Have It All – And That Means We Need to Make Tough Financial Choices
4. Money Can Buy Happiness – If We Spend It Carefully-Getting in Touch with Our Inner Caveman
5. Even the Best Investors Need to Be Great Savers – Thrift Doesn’t Come Naturally, So Try Trickery
6. Time Is as Valuable as Money – Investment Compounding? Yes, It Is Truly Magical
7. No Investment Is Risk-Free – It’s a Dangerous World-Even for Those Hiding out in Savings Accounts
8. Portfolio Performance: It’s All in the Mix – Our Stock-Bond Split Powers Our Investment Results
9. Stocks are Worth Something – Getting a Piece of the Economic Action
10. To Add Wealth, We Need to Overcome the Subtractions – If We Aren’t Careful, We’ll Double Our Money-in 47 Years
11. Aiming for Average Is the Only Sure Way to Win – Why the Meek Will Inherit the Earth
12. Wild Investments Can Tame Our Portfolios – Looking to Zig When Everything Zags
13. Short-Term Results Matter to Long-Term Investors – Keep One Eye on the Horizon-And the Other on the Ground Ahead
14. A Long Life is a Big Risk – The Danger: We Run out of Money Before We Run out of Breath
15. Markets May Be Rational, but We Aren’t – Investing Is Simple-And Yet It Sure Isn’t Easy
16. Our Homes Are a Fine Investment that Won’t Appreciate Much – They’re Money Pits-with Impressive Dividends
17. Paying off Debts Could Be Our Best Bond Investment – How Does a Guaranteed 15 Percent Sound?
18. Saving Taxes Can Cost Us Dearly – But Retirement Accounts are the Big Exception
19. A Tax Deferred Is Extra Money Made – Why We Should Keep Uncle Sam Waiting
20. Insurance Won’t Make Us Any Money-If We’re Lucky – The Best Protection is a Plump Portfolio
21. Even If We Have a Will, We May Not Get Our Way – Don’t Fret Over Estate Taxes-but Worry About Those Legal Bills
22. Financial Success: It’s About More than Money – Family Can Be Our Greatest Asset-and Our Greatest Liability
23. Conclusion – Wall Street? That Isn’t So Far from Main Street

Right now as I flip through and re-read the book “Think and Grow Rich” by Napoleon Hill, which by the way is awesome and one of the original motivational books, there is a poem that is buried within:

I bargained with Life for a penny
And Life would pay no more,
However I begged at evening
When I counted my scanty store.

For Life is a just employer,
He gives you what you ask,
But once you have set the wages,
Why, you must bear the task.

I worked for a menial’s hire,
Only to learn, dismayed,
That any wage I had asked of Life,
Life would have willingly paid.

I really like this poem and I absolutely believe it’s true. If you really, completely, whole-heartedly want something, Life will give it to you. But you need to make the effort to get there.

For me, my motivation is to retire by the age of 35 and I will focus my mind in finding ways to accomplish that task and give it all I’ve got.

What is it that you want from Life? Remember to Aim High.

Why Did I Choose to Read It: The book was published very recently in February of 2009 and it promised to explain why there is a systemic crisis going on in our current U.S. economy. Although I have read numerous articles from leading journalists at the NYT and WSJ, I never felt I had a good idea of why all of this was happening and why it seems our economy keeps falling apart every 4-5 years (recall the tech bubble anyone?). That can’t be normal, right? So I thought, hey why not give this book a try and see if the author can explain things. Added in the fact that this book has 4.5 stars with 160 reviews on amazon, it was a pretty easy choice.

What I Learned: I’ll admit many parts of this book was rather eye-opening. The main thesis for this book is based on the Austrian Theory of Economics. I’ve heard of this school of thought before but never really learned it in-depth, even though I do read Peter Schiff’s website almost daily. This book asserts that the real why we are in this mess today (and all our prior messes) is due to the tinkering of our money supply and interest rates by the Federal Reserve.

There is so much information covered in the book that I’ll just touch upon the author’s explanation of interest rates and how the Fed’s manipulation of them is negatively affecting our economy. As the book explains, in a sustainable economy the interest rate should be left floating and changed only by the actual supply and demand of people.

For example, if our citizens turned into a population of savers then the supply of saved money in our country’s banks would increase and thus lower the interest rate. Businesses seeing the lowered interest rate would then borrow the money from the banks to invest in future ventures. Economically this makes sense to the businesses because the low interest rate gives indication that the people are not spending now and thus will have money to spend in the future when their ventures are completed and hence they would become profitable.

Likewise, if the population instead turns into spendthrifts then the interest rate should naturally go up in the banks because they have a lower money supply (less of an asset results in higher costs to acquire the asset). Thus, less businesses will borrow money from the banks since the high interest rate would make certain ventures prohibitively expensive. Rather, the higher interest rate would give a signal to the banks that people are spending money now and thus would have less money in the future to spend on your ventures.

As you can see, it all makes sense and everything is interrelated. When the Fed comes in and starts making the interest rate artifically low, it throws the entire system out of whack. Businesses spend money on ventures that will never become profitable because people are also spending money and so will not have money to spend in the future. Our normal interest rate (not muddled by the Fed) is a natural indicator of where the economy is at. Unfortunately, due to the ways our system is constructed the Fed often manipulates the interet rate which then lead to boom and bust cycles.

Overall Review: I would recommend reading this book if you want to have a greater understanding of how our economy works. Although the author does sometimes go on rampages about our government, given the current situation our economy is in, I believe it is warranted. The only part I don’t like are threaded comments throughout the book emphasizing gold as the be and end all solution to our economy’s problems. I’ve met enough gold bugs to last me a lifetime and so that part was particularly annoying. However, the simple and concise explanation of our money supply, interest rates, and the hidden underbelly of the Fed made the book worth reading.