There are numerous books on Personal Finance, Money Management and Investment. Hence it’s a complicated task to pick Top few. However, I have done my best to cover every aspect of Money Management while selecting these 5 books; right from Mindset to Income, Expenses, Investment, Debt Management, Protection, etc.
Books are perhaps the most easily accessible source of knowledge. This day and age, books are available in various forms like an ebook, Kindle version, Audio Book, even book summaries to go with the physical copy of the book. If you and I can apply the knowledge from these books we can surely achieve our goals.
This article is meant for you if you are looking to achieve Financial Freedom and live a peaceful Financial Life. Since 2015, after reading the first self-help book, I have read more than 100 books and a majority of them are on Money Management and Personal Finance. I have picked the top 5 based on the insights they provided me in improving my and my clients’ financial lives. Below are the 3 key takeaways or actions points from each of these 5 books to achieve Financial Freedom.
Rich Dad Poor Dad by Robert Kiyosaki:
This was the first self-help book, I picked up in the year 2015 when my financial life was in a total mess. In this book, the author talks about the mindsets and beliefs that define financial success and the contrasting mindset and beliefs of the poor. Despite being a teacher and a genius, the author referred to his biological dad as Poor Dad because of his mindsets and beliefs towards money. On the other hand, his financial mentor who has not finished 8th grade was a Rich Dad for him.
Below are the 3 key takeaways from the book ‘Rich Dad Poor Dad’.
Financial Intelligence is all about knowing how to make more money, how to protect your money, budgeting your money, leveraging your money, and improving your financial information. In short, mastering how money works and then instead of working for money, put money to work for you.
The formal education system doesn’t teach you how money works. It only teaches you how you can earn money and that too by exchanging your time for money. Further, the majority of people you spend time with and seek guidance for financial matters, know very little about how to achieve Financial Freedom. Hence, it’s up to you to decide if you want to grind throughout your life or you would seek intervention from someone to upgrade your Financial IQ in order to achieve Financial Freedom.
Cashflow Quadrant is a representation of how we make money. As the image shows there are 4 ways every person can earn income.
- Employee: An employee has a job and he exchanges his time for money. Since each person on the planet gets 24 hours a day, it’s very difficult to leverage time to earn a huge amount of money.
- Self Employed: A self-employed person is very similar to an employee with the only difference being instead of having a job, the self-employed owns the job. He has a small business of his own and it is dependent solely on his time. So, again it’s hard to leverage to earn huge money.
- Business Owner: A business owner is someone who owns a business. He has a system in place plus he has a number of people working with him. Hence, he can leverage other people’s time as well as his system to earn a huge amount of money.
- Investor: An investor is someone who has surplus money which he invests in either other businesses or real estate or any other investment avenues. Since his investments are not dependent on his time, an investor can leverage his money to earn a huge amount of money. Here, the money works for the investor.
In order to achieve Financial Freedom, you can’t depend on just your primary source of income. You need to be present in more than one quadrant to leverage time, money, people and systems in order to achieve higher earnings.
Assets and Liabilities:
Robert Kiyosaki views the concepts of Assets and Liabilities with a whole new perspective, very different from what we learn during our formal education. E.g. We are taught during formal education that owning a self-occupied house or a car is an asset. Whereas Robert thinks both owning a car and self-occupied house are liabilities. Simply because neither car nor house is going to put a positive cash flow in our bank account.
The author’s definition of Asset is anything that puts positive cash flow into your bank account, either immediately or in future. Anything that is taking away money from your bank account, either immediately or in future is a liability. With this perspective, Robert is right in categorizing self-occupied houses and cars as liabilities.
You are not going to sell the house you are living in and hence it won’t put money into your bank account. Further, in order to maintain the house, you are incurring some expenses like property tax, maintenance, insurance, etc. These self-occupied house-related expenses are taking money out from your bank account.
Same is the case with the car. You are paying the fuel expenses, service costs, insurance premium, etc to use it which takes away money from you. Further, in future when you are going to sell the car, you are obviously not going to get more money than what you paid for while purchasing the car. So this also affects your cash flow negatively.
So, the key takeaway is to spend money on acquiring appreciating assets rather than depreciating assets and build on your cash flow to achieve Financial freedom faster.
Richest Man In Babylon by George S. Clason
Babylon was the wealthiest city in the world about 4,000 years ago. People of this city appreciated the value of money so much that in 1926 this book was published based on the parables back then. Despite having its roots in ancient history, its parables are still as applicable as they were back then. Below are the 3 key action points based on this classic book.
Pay Yourself First:
You are the biggest asset for yourself. This is precisely the reason why the author wants you to pay yourself first. Besides the author, modern-day greats also agree that there is no best investment in the world than investing in yourself.
Now, if you are not getting the point of how you can pay yourself, let me put a few points that would help you understand what paying yourself is.
- It could be paying to enhance your knowledge related to your core job/business or money management, improve your skills at anything.
- This could be paying for anything that you love and vital to you like your hobby or passion.
- Not to forget your future self as a way to pay yourself. You can set aside some portion of your income and invest it for your future use.
Just keep in mind your goal of achieving Financial Freedom while paying yourself in whichever way.
Control Your Expenses:
As seen earlier being an investor is an important way to leverage money, systems and people which could help immensely in achieving financial freedom. For being an investor, you need surplus money to invest. Controlling your expenses is perhaps the most important way to have sizable surplus money to invest. All the self-made millionaires and billionaires advocate the idea of living below one’s means. Put a system or strategy in place to control the expenses and learn to live on 75% or less of what you earn.
Protect Your Wealth:
It’s very easy to lose the wealth you have accumulated if you are not guarding it properly. Here I am referring to both external and uncontrollable factors that could wipe away the accumulated wealth or make a big dent in it. So, it’s wiser to think anything and everything that could go wrong and prepare a ‘Plan B’ for such scenarios. This would speed up or at least won’t delay the process of achieving Financial Freedom.
Total Money MakeOver by Dave Ramsey:
Dave Ramsey, the author is more focused on debt management when it comes to Personal Finance as debt is arguably the biggest constraint to achieve Financial Freedom in this day and age. In this book, Ramsey has given 7 baby steps and they are chronological in order, you move to the next one only when you are done with the first. I am discussing the 3 action points based on what’s covered or not in other books’ summary.
Start the Debt Snowfall:
The debt snowfall is a term given by Dave Ramsey to the method of paying off all your bad debts. Here Bad debts refer to debts for which you are paying interest way beyond what you can earn as interest/dividends from your investments. Below is the simple explanation of the debt snowfall.
- List down all your debts
- Arrange them in order of outstanding amount from low to high
- Start paying the smallest debt first with ‘gazelle focus’
- Move on the next lowest debt once you are done with the smallest one
Repeat the steps till all your bad debts have been cleared.
Save for Your Next Big Purchase:
This step is to make sure you are not opting for the next bad debt. There is no point in clearing your debts and again opting for one. For that, you have to plan your next few big purchases. Maybe next 2, 5 or even 10 years. Keeping in my your future requirements, list down all possible purchases that would require a relatively huge amount. Estimate the fund requirements and start saving for the same.
Invest for Financial Freedom:
I am using the word Financial Freedom instead of the term Retirement used by the author. Retirement is the time when you don’t work actively to earn money.
The meaning of Financial Freedom used throughout this article is that you have more than enough assets or funds that generate more than enough passive income that takes care of all your expenses, including the discretionary as well as luxuries.
Hence, it’s fair to use the word Financial Freedom instead of Retirement. Now, coming back to the takeaway, you need to start investing at least 15% of your gross income as your financial freedom fund. Apart from the regular 15% of your gross income, you should put any additional inflows like bonuses, inheritance, gifts, etc to the financial freedom fund to lessen the time taken.
Secrets of Millionaire Mind by T. Harv Eker:
This book is more focused on your relationship with money and wealth, the emotional and psychological traits related to money and wealth. It differentiates the traits of financially successful millionaires with that of the poor. Below are the 3 action steps from this modern-day book.
Approach Towards Life:
Life happens to me vs. I create my own life are two approaches to any area of life, be it health, wealth or relationship. The former approach is that of people who are not so successful financially.
They always seem to blame other people, situations or circumstances for whatever is happening with them. Apart from this, they try to justify or rationalize their failure or lack of success. The other observation by the author is that they keep complaining about almost everything.
Whereas the millionaires and billionaires believe they create their own life. They take full responsibility for everything that is happening to them including their financial situation. Now, I am leaving it up to you which approach you are going to take.
The millionaires always prefer to be rewarded based on the results they produce for others whereas the poor want to get paid based on the time they spend. This might look a little irrelevant w.r.t. Achieving financial freedom. However, I look at it from a different perspective. Instead of focusing on time while pursuing financial freedom, you should focus more on the result you would get. In other words, don’t worry if it takes 7, 10, 15 or even 20 years to achieve financial freedom. Just focus on what life would be like once you achieve financial freedom!
The poor mostly operate from the perspective of scarcity and limitations. It’s like either this or that option. Another example would be if he gets something, I would be deprived of the same.
The millionaires instead operate with the abundance mindset. They think there is a lot more of everything that everyone can have their fair share and prosper. They operate with inclusivity and try to get or make the most of both worlds when it comes to choices.
The Millionaire Fastlane by MJ DeMarco:
The book is all about reaching financial freedom faster, much faster. So that you can enjoy the rewards of achieving financial freedom while you are young, healthy, vibrant and energetic. Let’s dive into the 3 major learnings from the book.
The 3 Approaches to Financial Freedom:
The 3 approaches are The Sidewalker, The Slowlaner and The Fastlaner. In order to understand the 3 approaches, you will need to look at three stereotypical characteristics w.r.t. 5 important aspects related to financial freedom.
- The Sidewalker: Whatever pays the best today, I will take it.
- The Slowlaner: Primary source of income (Job or Business) plus investment.
- The Fastlaner: Multiple Sources of income i.e. Primary Source of income, people & Systems working simultaneously.
Outlook to Money:
- The Sidewalker: Spend it, seize the day!
- The Slowlaner: Money is scarce. A dollar saved is a dollar earned. Live below your means.
- The Fastlaner: Money is everywhere and in abundance. Money is simply a reflection of how much value I’ve been able to create and deliver in the marketplace. Live below your means with an intent to expand those means.
- The Sidewalker: Time is abundant and I don’t feel like doing today. I can always do it later or tomorrow.
- The Slowlaner: happy to trade many years at college to get a higher salary and happy to trade time for money
- The Fastlaner: Time is the most valuable asset by far and I must detach my income from time spent.
- The Sidewalker: What!!!
- The Slowlaner: I’m going to retire financially secure at age 55, once I am done with my family responsibilities like children’s higher education & marriage, car & home purchase, few vacations, etc.
- The Fastlaner: Goal is to create a lifelong passive income through investments, people & systems working simultaneously.
Outlook to Life:
- The Sidewalker: Live today, No regrets!
- The Slowlaner: I’ve given up on big audacious dreams. I’m a realist and if I live below my means & don’t take unnecessary risks, I will retire with a Crore one day.
- The Fastlaner: I will pursue my dreams, no matter how crazy they may sound.
The Math of Poverty and Mediocrity:
- The Sidewalker: Wealth = Income + Debt
- The Slowlaner: Wealth = Job or Business + Investments
- Job = Hourly Wage * Hours Worked
- Job = Yearly Salary
- Investments = Invested Amount * (1+ Yield) ^ Time
The Math of Wealth:
- The Fastlaner:
- Wealth = Profit + Asset value of multiple systems
- Profit = Units Sold * Profit per Unit
- Plus Investments
The Sidewalk who wins the lottery will undoubtedly become wealthy, and the Slowlaner can become the CEO of a Fortune 500 company. But the odds are not in your favour, and therefore you might want to switch to the Fastlane approach.
In summary, I would say financial freedom is not unachievable once you are in the right mindset, acquire the necessary basic knowledge about how money works and form a well thought out strategy to earn maximum by leveraging all your resources, spend wisely and save enough to enjoy the present as well as plan for the future, invest the surplus money into systems and businesses to generate optimum returns and protect the wealth from the uncontrollable in life.
To Your Financial Well-being.
Hi, I am Jiten Modi. Son of a Driver, born and brought up in typical Indian Village; A brilliant Student at Academics, A Cricket fanatic; Once A Corporate Zombie and A Pathetic Money Manager Turned into A Personal Finance Strategist.
I am the Founder of ‘Financial Abundance Tribe’ and Creator of ‘Astute Money Matrix’
I am on a Mission to help 100,000 families live a Zero Stress Financial Life.