August 18, 2008

Good Book : The Complete Idiots Guide to Getting Rich

This is a review of The Complete Idiot's Guide to Getting Rich. It is by Stewart H Welch III and Larry Waschka. I read the 3rd edition of the book.

Here's the description from the publisher: "With advice on investing, saving, and money management, the latest edition of this popular guide expands on the habits and strategies that will bring financial success. The authors present succinct and complete information on knowing the wealth index, using the debt pyramid reduction program, hiring financial advisors, and more."

I have to admit when I picked up the book the title made me a bit cynical. "Getting Rich" seemed much too like "get rich scheme". But don't let the title fool you too. The book is full of legitimate financial advice with methods for developing wealth. There was one good quote in the book that ensured me it wasn't a gimmick book:
"Building wealth is not about buying fancy cars and clothes. Its about living within your means."

As the title suggests The Complete Idiot's Guide to Getting Rich is focused on obtaining and growing wealth. Its a decent overview as you'd expect from a Complete Idiot's Guide title. The first part covers the basics of getting rich with intro topics on what it means to be wealthy, tools for building wealth, their 5 stages of wealth, good versus bad debt, saving money, secrets of millionaires and getting rich as an employee. Part two covers investing. There is a chapter that discusses 'fools' gold' or investments to avoid, list of good investments, getting into the market, building a 'brain trust' of advisors (CPA, lawyer, insurance reps, financial planner), and then 'advanced' investment strategies. Part 3 goes into running a business, Part 4 is about building and preserving wealth with topics on real estate and taxes.

There were a few bits from the book that I found particularly interesting. One of them was their 5 stages of wealth.

They define 5 stages of wealth:
Stage 1 : Meet a target savings goal
Sage 2 : Your asset growth equals your savings goal
Stage 3 : The return on your investments is enough to meet your living expenses.
Stage 4 : Return on investments is double your living expenses
Stage 5 : Return on investments is 5 times your expenses.

I like this way of thinking about it. I personally think that defining and setting progressive goals that you can work towards accomplishing is an excellent way to get where you want. So I really liked this way of splitting up the road to wealth.

More than once in the book they disagreed with the conventional wisdom of investing a portion of your investments in bonds. The old rule is to subtract your age from 100 and that is the percent you would put in stocks and that the rest should be in bonds. The authors of the book however feel that people will live longer lives and that the old rule of thumb is outdated. They recommend putting all your investments into equities and they say that this is the best way to ensure your return is enough.

When they discussed running a business they have full chapters on avoiding the #1 and #2 reasons that businesses fail. The #1 reason they say is lack of capital and the #2 reason is poor management.

In the real estate section they had an interesting idea on using a real estate investment to help subsidize college expenses for you children. They suggest buying a house with a few bedrooms near your child's college and then having your child live there and renting out the other rooms. There are a few benefits to this idea. First your child has a place to live and renting out the other rooms should cover the mortgage. Second you get tax benefits of owning rental property. Third you should see some equity appreciation in the property over four years. Finally your child gets some valuable experience while managing the property.

On the negative side, I found the organization of The Complete Idiot's Guide to Getting Rich slightly awkward at times and the editing could have been a touch better. For example, on page 200 they said that 80% of small businesses fail and then on page 208 they said that 90% of small businesses fail in the first year.

I would recommend The Complete Idiot's Guide to Getting Rich if you're at the stage in life that you're looking ahead to building real wealth. It has a lot of good content with some interesting ideas. It has some good solid advice to use when planning to build your own wealth. Look for it in your local library.

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