I think Financial IQ by Robert Kiyosaki is a good “big financial picture” book that can help some re-frame the way they think about money and the impact money has on their lives. He talks about various Financial IQs and how the rules of money has changed, all of which are important ideas to think about. I’m not saying he’s right, but he certainly raises questions that require additional investigation. I don’t think you should take anyone’s opinions, and that’s what a book like this is really about, as pure gospel without reviewing the details for yourself. For an example of this, let’s take a look at one of the rules that have changed, according to Kiyosaki.

Gold Standard

Kiyosaki repeatedly states that the rules of money changed in 1971. 1971 was the year that President Nixon took the United States off the gold standard. Kiyosaki goes on to explain how that turned our dollars from “money” to “currency,” and how all currencies will eventually move towards being worthless. Besides being a little inflammatory and doomsday-ish, the point is somewhat valid as the concept of inflation is just that - our money is worth less and less each year. Is this true?

If every nation’s money is pegged to gold, what you have are pieces of paper worth exchangeable for different amounts of gold. If you have that, then exchange rates are all fixed and there is no inflation. What ends up happening is that instead of inflation handling the differing growth rates in countries, you would have a shifting of gold reserves. If a country’s gold reserves go down, then you end up deflating and have to pay people less and then they can’t pay their debts and all sorts of bad things happen (at least according to this interesting article by Peter Bernstein. So… while inflation seems bad, it’s not as bad as deflation. So, the lesson of the day is to trust but verify.

Financial IQ’s

The five basic financial IQs are:

1. Making more money.
2. Protecting your money.
3. Budgeting your money.
4. Leveraging your money.
5. Improving your financial information.

The importance of these financial IQs is that these are the five areas you need to educate yourself on about money, having a high IQ in one area does not mean you have a high IQ in any of the others. Just because you’re good at making money doesn’t mean you’re good at protecting it or leveraging it. I think we can all agree with that but we’d also agree that this is hardly groundbreaking information. Let’s take a look at the first Financial IQ: Making more money.

IQ #1. Make more money!

The key to making more money is learning from your mistakes and solving your problems. Kiyosaki begins this chapter with stories of his younger years as he left a lucrative job as a third mate on an oil tanker to enlist in the Marines for Vietnam, then opting to become a Xerox salesman rather than return the oil business so that he could pursue the path of entrepreneurship. He goes on to explain the rest of his successes and failures with the point being that you have to learn from your mistakes in order to find the right path for you. (there’s also a little bit of Seth Godin’s The Dip in there, where you don’t settle for your local maximum)

Many of the other chapters are like this, very high level, and it’s something that JD of Get Rich Slowly complained about in our chat the other day. The problem with being at such a high level is that it requires the reader to bring it down to the street level, where you take those ideas and act on them. If I remember correctly, JD wasn’t a big fan of that because sometimes we need actionable advice and this book just doesn’t deliver on it.

I have a different take, I appreciate the high level look and brain stimulation. I never thought about the impact of coming off the gold standard (I am only 27) and some of the other viewpoints brought on by Kiyosaki and so I welcome the ideas he’s pushing. Some of them aren’t too groundbreaking, but some of them do intrigue me.

If you’re looking for or need a step by step guide or something like that, I don’t think you’ll like this book very much. If you are looking for something high level, I think this one may stir up your brain a little and get those juices flowing.

Cash-Rich Retirement by Jim Schlagheck, seen on public television’s Retirement Revolution, seeks to turn the retirement advice community on its head by taking “the investing techniques of the mega-wealth” and bringing it to the masses. It’s quite a bold statement to make, since we all know the mega-rich are afforded a much different set of rules than the rest of us, so we’ll see if Mr. Schlagheck can deliver.

The dust jacket says that Schlagheck’s advice “breaks with conventional advice that tells the public to invest mightily in stocks, flip holdings, and seek capital gains.” I’m not sure that the conventional advice says you should be actively trading stocks, but then again personal finance bloggers live in a world where we are exposed to the sage advice of Buffett and Bogle, two accomplished investors who actively advocate index funds for the masses. However, even if you accept the belief that the conventional advice is flipping stocks, Schlagheck advocates investing for “prudent income… Build a ‘life-cycle’ annuity package for lifetime retirement income. Focus on dividend-, interest-, and rent-producing investments and insurance.” If your alarms went off when you red “life-cycle” annuity package, you weren’t alone - mine went crazy. Annuities are actually one of the “six straight-shooting, show-me-the-money steps” in the Cash-Rich Retirement plan. We can see what Schlagheck means when we get to them.

The six steps are:

• Change your “automatic pilot”
• Diversify your holdings in radically different ways
• Build out your investment plan with funds and objective research
• Get all the professional help you can
• Build income streams with a ladder of annuities
• Invest in long-term health care insurance

Setting the stage

The book begins by discussing retirement and how the rules of the game have changed. Schlagheck has a very straight forward and easy to understand writing style and the book is organized in a way that makes it very easy to follow. He makes excellent points about how the retirement is changing, given the changing demographics, solvency of Social Security, and a whole collection of other issues. It really does drive the point home that the old rules of retirement are changing (because they are!).

Let’s see these six steps…

Change your “automatic pilot”

Schlagheck’s term of “automatic pilot” refers to the fact that you concept of “saving for retirement” is investing for speculative gains. It means taking stocks in your Roth and going after high flyers, it means pushing your 401(k) contributions into microcaps or other more risky investments, and he argues that you need to rewire the way you think and act differently. Less like a slot-machine player and more like a saver and cautious investor. Mostly, he’s saying you need to take your retirement seriously right now. What does he recommend you do?

• Save at least 20% pre-tax income
• Hold savings in tax-sheltered accounts (401k, 403b, etc.)
• Automate saving (think, Automatic Millionaire)
• Don’t chase speculative gains

So far, nothing super incredible or only within the realm of the super-rich. It’s just straight up, smart personal finance advice that’s been repeated before, though it does have some eye-opening statistics not often included in other books.

Radically diversify your holdings

This chapter focuses on how your asset allocation is probably off, though it focuses on many of the simple mistakes people may make such as investing too much in company stock or being too risky in allotments. He advocates investing in things that provide cash flow. That includes dividend stocks, interest bearing accounts or investments, and “rent” producing REITS or rental properties. This is probably where the “Cash-Rich” in the title comes from. Another category he says you should increase in is international exposure, an idea that probably would’ve netted you quite a tidy sum had you implemented several years ago.

From here, this book has some nice ideas but nothing that’s radically new or unheard of. Since the annuity chapter sounded some alarms, let us skip to that chapter.

Build income with annuities

Annuities are like timeshares, they’re not inherently bad, they were just pitched by inherently bad people. The book makes an excellent case for annuities and one that I buy into, though, as they say, the devil is in the details. Annuities provide protection against longevity risk, which is the risk that you’ll outlive your retirement savings, by providing a guaranteed constant income stream and Schlagheck recommends using them after everything else (401k, Roth). I believe that to be prudent advice.

Schlagheck explains annuities, how they are structured, the four main types, the benefits, drawbacks, etc. If you want a primer on annuities, Schlagheck has a good one in his book. He warns about the costs of an annuity, which are 2.3% average, and says that there are many excellent ones at a fraction of the cost.

So what’s this life cycle strategy? The idea is that you want to ladder your annuities so that you get different amounts of income at different points of your retirement. His example has three annuities, each paying out for three different time periods. The first pays out income for 9 years from age 65 to 74, #2 pays out for 9 years from 75 to 84, and #3 pays out from 85 and onward. I’m afraid the details are outside my capability to detail with much clarity so you’ll have to check out the book if you want to know how their structured. He also provides a lot of explanation that I think is crucial for understanding how to ladder annuities, such as tax implications, purchase tactics, etc.

Overall Impressions

Overall, I felt Schlagheck did a good job explaining his cash-rich retirement plan, even though I skipped a few of them in this review, though nothing seemed exclusive to the mega-wealthy. Granted, the ability for most retirees to invest in rental properties is slim (but not unheard of) but investing in dividend stocks, buying annuities, and many of the other suggestions are not anything special. His explanation of annuities, for someone who knows little about them or the fact that laddering them would be a good technique, was comprehensive and easy to understand. If you have the basics of retirement down and are looking to learn more, I think getting this book, either at the bookstore or your local library, would be a great first step.

Several weekends ago I attended a Personal Finance Bloggers Conference in San Francisco held by MyStrands, NetworthIQ, and Expensr. The trip itself was a blast, I met a ton of new faces, including many personal finance bloggers, and had an opportunity to discuss what I’d be interested in with a new personal finance tool. A full recap of the weekend can be found at Get Rich Slowly, who also happened to get a copy of The Prosperous Peasant out to me for review.

My first impressions of The Prosperous Peasant were that it’s written in very much the same manner as The Richest Man in Babylon, just set in Samurai-era Japan and with slightly different lessons. The story follows two friends, Jiro and Gonsuke, as they seek to find enlightenment from the renowned Samurai, Hideyoshi.

JD gives a great review of the details of the book, explaining the five secrets, so I’ll pass in that department and share only my opinion of the book as a whole. I really enjoyed it because it told a colorful story while weaving in important principles everyone would do well to understand. JD complains about the book starting slowly, which I agree that it does, and gets a little confusing with all the Japanese terms, which I also agree that it does, but I feel all of those help establish the environment in which the story will be told.

I have yet to ask my wife to take a look at this book but I suspect those who are a fan of fiction would find this book far more appealing than any book written by a personal finance expert. Those books, while perfect for people who want hard numbers, analysis, and pretty graphs; turn most “regular” people off because they’re boring and dry. I feel that this book, and the Richest Man in Babylon, try to marry the entertaining fiction and the valuable prosperity lessons into a book that will appeal to a different class of reader.

Lastly, I believe this style of writing is the only way to convey some of the softer lessons in life in a way that’s engaging and interesting. You’d be hard-pressed to come up with numbers to back up a lesson like “Gratitude attracts luck,” but you can tell a story that does so. It would be difficult to prove, and it would be completely boring to read, how “Conceivable means achievable,” but a fictional narrative handles it quite well.

So, if you’re a number cruncher type, you’ll want to pass on this book. If you’re more into a fictional narrative, you may find this book right up your alley.

Lesley Scorgie appeared on Oprah Winfrey when she was 17, a show entitled “Ordinary People, Extraordinary Wealth,” and ever since she’s had a string of television and media appearances because she seems to have a knack to grow her own personal finances and well on her way to being rich by thirty. Now, author of a book titled “Rich by Thirty: A Young Adult’s Guide to Financial Success,” I’ve had the opportunity to read it and hopefully be able to set up an interview with her in the near future.

Rich by Thirty is perfect for the early twenty crowd. If you recently graduated college, just got your first paycheck, or are about to sign the lease on a new apartment; you’re the target audience for this book. If you’re a little older but at this stage financially (maybe you went to graduate school? maybe you made some poor financial decisions?), this is a great book for you because it puts down on paper everything people are forced to learn (and pay for) in the real world on their own.

This isn’t a book about a kid who struck it rich by coming up with a series of great internet ideas (that’s Cameron Johnson) or a guy who exemplified frugality until he was able to strike it rich in the real estate boom (that’s Alan Corey), this is a story about fiscal responsibility, investing acumen, and just being smart with your money from someone who came from a middle-class family in Canada.

I enjoyed the book because it was very direct, understandable, and didn’t use these huge long rambling allegories to get her point across. The book is broken up into logical sections like Get Started (it’s about budgeting), Get Out from Under (how to handle credit and debt), Get Saving (umm… it’s about saving), and two sections on investing. In each, she uses a quick example (”Meet Joey, a Pisces from Georgia who likes long walks on the beach…”) and then jumps right into an explanation that is both clear and appropriate.

I think this book makes a great graduation gift if you’re trying to think of a gift for someone this summer and at a mere $12.95 it’s a pretty good deal. I don’t often recommend that someone buy the book (borrowing it from the library is usually good enough) but since I think this is good information for a college graduate, it makes an ideal gift. Now, getting them to read it is another thing (though the sections are in nice bite-sized pieces so the short-attention-span crowd will be able to digest it).

I always enjoy books that tell a story of someone’s life and this one, A Million Bucks by 30, about how Alan Corey “overcame a crap job, stingy parents, and a useless degree to become a millionaire before (or after) turning thirty,” was no exception. To get a feel for the guy, I think you have to start at the dedication. You know those pages right before the title page where the author thanks a few choice people like a half second Academy Awards acceptance speech? This is what his said:

This amazingly awesome book is dedicated to my parents, Nancy and Larry. Mom, don’t worry, there shouldn’t be any embarrassing grammar mistakes. Dad, thanks for buying this before it hits the bargain bin.” (those would be the stingy parents he referred to on the cover page)

The second “dedication page” reads: “Just to be clear, this amazingly awesome book is not dedicated to my sister, Jill.” You can get a sense that the book is probably going to be an entertaining read… you wouldn’t be wrong.

So, what is this book about? Alan Corey’s life. He, like many young people, decided he was going to become a millionaire by thirty. He didn’t sit around and envision the perfect future, he didn’t wish and hope that good things would happen to him, he moved. He didn’t know what he was going to do when he got to where he was going, but he acted. This book is about all the crazy things Alan did. Some of them got him closer to his goal of a million bucks, some of them just got him to the next day, all of them are crazy stories and ridiculously entertaining to read.

Besides being a man of action, Alan is resourceful. Many of us unlearn the things we learned to survive in college, he learned to adapt them and use those skills to improve his life. In college, many people are frugal. By the time we get a five figure job and enter the real world, we think we’ve made it. We think the days of ramen are over and we can start living the high life! Not Alan, those resourcefulness skills just have more weapons to play with! Heck, the guy is making a decent wage ($40k in NYC is rough, but decent) but still plays “How Cheap Can I Go?”

So, how about these great stories? Chapter 10: Tripped Out is an awesome chapter about how he would try to get on television shows. The first story he talks about is Change of Heart. On Change of Heart, one half of a couple would go out on a date and decide whether to stick with her current boyfriend or go with the new one. Alan auditioned, got cast, and he was the new guy for this girl. He was in it for the free food and drink plus the $350 appearance fee. What’s funny is that the girl did have a change of heart, picked him, but they never saw each other again! He goes on to talk about a few other shows, how to use creativity to get on them, and other entertaining nuggets of randomness that make the book a fun read. (here’s a video montage of his appearances)

So, I bet now you’re burning to find out how Alan, in playing “How Cheap Can I Go?” and appearing on random television shows, reaches a million bucks? Real estate. That’s right, Alan saves up, borrows, and eventually makes his bank on real estate deals. Why do we need yet another book about real estate especially in this awful housing market? It’s because this book isn’t about real estate, it’s about how to fight and claw your way to your dreams. The difference with this book is that you get to follow Alan’s life from the beginning. You start when he graduates college and has no idea what the heck his MIS degree means to when he appears on Queer Eye (season one, gets $15k worth of free stuff!) to when he borrows money from his mom to when he starts entering the real estate world. It’s not an instruction manual on any one thing, it’s a testament to the fact that everyone’s path is different and Alan’s was merely more exciting than most.

I really enjoyed this book and Alan was kind enough to send me an extra copy, so leave a comment about your favorite game show TV moment and I’ll draw a name next week. The winner will receive a signed copy of A Million Bucks by 30.

When I received a copy of Larry Winget’s You’re Broke Because You Want To Be, I didn’t really know what to expect. I had seen parts of a few episodes of his show, Big Spender on A&E, and knew his style to very much be no-nonsense, get right down the business, you need to deal with your problems because you are in control, type of person. I like his style because it doesn’t tip toe around issues, it doesn’t BS with you to get you to think of the right questions to ask or the right answers to say, his style gets you and your problems into a room so you can fix it. This book is exactly in that same style and anyone with money problems and the fortitude to face them in this manner should read this book.

A great example of his style is practically the first page when he discusses who this book is for. He says “Before we begin, let’s make sure we understand one another.” The title is The Difference Between Poor and Broke. Anyway, he goes on to say that poor is a sad condition but broke is something controllable. Broke means you’re either underearning or overspending, poor is something entirely different. Most Americans are broke, they aren’t poor (for poor, think of those places supported by charities stating they could feed people for pennies a day); and they can control it if they knew how and were given a swift kick to get them started. The introduction goes on to say how victimhood is not something you can claim because it’s not like someone showed up one day and forced you to pile on credit card debt, it’s not like someone forced you to buy a flashy new car, etc. Lastly, he ends the introduction by saying everything you already knew: “I am not a blow-smoke-up-your-skirt, you-can-do-anything- with-a-positive-attitude kind of guy. I am a nose-to- the-grindstone, no-excuses-will-be- accepted kind of guy. I’m harsh. I’m abrasive. Your feelings will probably get hurt as you read what I have to say. … I’m the guy you go to when everything else has failed and you are desperate. I know what it’s like to be desperate because I’ve been there. It’s terrifying. And the last thing you want is a hug and to be told to have a positive attitude.”

So, why this book? This book is like a focused laser and is designed for people who are earning a good wage but can’t seem to get ahead. Everything about it is focused on that so if you’re looking for a book on investing, this isn’t it. If you’re interested in hearing the commonalities between all the folks Larry has worked with to see if you exhibit those traits and how you can fix them, then this book will do you some good. One prime example is on page 65 where he says not a single person he has worked with had a clear idea of how much they earned and how much they owed. In other words, they didn’t have a clear understanding of their current state. If you don’t know where you are now, how can you ever possibly 1) get anywhere; 2) improve your situation?

The only thing I’d be concerned about is that many people don’t respond to this kind of motivation. Not only do many people not respond to it, far fewer people will respond to it when it’s in the form of the written word. It’s one thing for Larry Winget to be in front of you, forcing you to confront your problems, and it’s another to be reading it from a book! My take is that the people this book is trying to reach should read it and put his advice to work because he makes excellent points and gives actionable advice.

Last week, Nickel polled a few personal finance bloggers for their favorite personal finance books and reached a nice set of eleven great books. My personal favorite was The Richest Man in Babylon because: “This book does what no other personal finance book does. It keeps the generally simple tenets of personal finance very simple. Too often books try to be very complicated so they sell more copies, but The Richest Man uses very easy to understand allegories that won’t trip anyone up.”

So, of course, after a post about 11 Great Books About Money, you must be wondering about what the 11 Terrible Books About Money are right!? Well, I polled the same set of bloggers and found that it was much harder to remember the terrible books because we often just put them out of our minds. In fact, several of them weren’t even able to come up with one (perhaps they just wanted to be positive!) But, a few of them did share their opinions and so we have four. That’s right, only four… but one book was hated by four bloggers, so we have representation from eight bloggers (including myself).

Rich Dad, Poor Dad by Robert Kiyosaki was declared terrible by four bloggers. The comments ranged from “not actionable” (that is, the advice might be good but how exactly do I use it?) to “insulting.”

• NCN: “While I was intrigued by the idea of the book, I found the advice to be hollow, somewhat cold, and non-specific.”
• Trent: “It was arguably inspirational, but it was factually incorrect (or at least not directly actionable) and it did a lot to encourage an actively antisocial mindset and a ridiculous disdain for people who don’t have an entrepreneurial spark. Kiyosaki goes so far as to call people who work for a salary “hamsters,” which goes beyond ridiculous to disturbing.”
• Leo: “It was a nice story, but it’s one thing to give advice and another to actually put it into action. Unlike some of my favorite personal finance books, RDPD doesn’t give enough concrete advice about investing or running your own business. It says that these are good things, but we already knew that. Now how do we implement them? It was a disappointment to me, as I was looking for more.”
• Jeremy: “If you want a an inspirational book that puts ideas into your head, yet gives ideas that are simply unrealistic for you to accomplish, this is the book for you. For the average person, you simply can’t put many of the ideas in this book to use. Not everyone can jump into real estate or start their own business. While these ideas can be great ways to free yourself from being an employee just trying to earn a paycheck, most people should be focused on the basics: getting out of debt, increasing their income, and investing some of their money for the future. According to Mr. Kiyosaki, investing in the stock market is for suckers. I guess Warren Buffett is a sucker.”

The next book listed is actually a Rich Dad Poor Dad spinoff/branded book, Rich Dad’s Advisors: Real Estate Riches by Dolf de Roos, picked by Will of Wisebread:

• Will @ Wisebread: “I blame books like this for the subprime mortgage crisis. This book is a glossy ad for real estate investment. The author spends most of his time trying to convince you how easy it is to make money from real estate. Charmingly written and marketed under the “Rich Dad” brand name, this book arms the novice investor with just enough information to be dangerous.”

The next book is another real estate related book, The Real Estate Coach by Bradley Sugars, not liked by FMF:

• FMF: “No new information and written in an annoying format. It’s told as the story of “Brian” and “Sarah” who are helped by a “Real Estate Coach.” Yuck! Please spare me the third-grade bedtime story and just give me the facts.”

And finally, Nickel dislikes yet another home related book, The Automatic Millionaire Homeowner by David Bach:

• Nickel: “This isn’t a particularly bad book, but… compared to The Automatic Millionaire, this book was more of the same with a slightly different twist. Sure, it’s motivational, but so are a ton of other financial books. Do yourself a favor and just read the original. Then pay off your mortgage early. There, I just saved you $12.95.”

So, which book did I think was terrible? Actually, it’s Rich Dad Poor Dad, which was disliked by four bloggers (really five). I think the general idea is sound, that you should have your money work for you instead of you working for your money, but I don’t like the game it plays. Kiyosaki’s “rich dad” and “poor dad” characters are silly but I think that’s the hook, that he can “point” to two different mindsets and use that to explain his point. Anyway, John T. Reed, who has “exposed” a bunch of real estate experts, shares his review of Rich Dad Poor Dad and I think it he hits the mark on the head.

What’s your most hated personal finance book and why? As an incentive, in about a week I’ll just randomly pick a few names from the list and send them some personal finance books I have lying around.