To stay out of harm's way financially, we need to build assets, not debts. One of the surest ways to build wealth over a lifetime is to spend far less than you make and intelligently invest the difference. But too many people hurt their financial health by failing to differentiate between their “wants” and their “needs.”
~ Andrew Hallam, Millionaire Teacher
If you're a novice investor wondering how to get started on the road to a worry-free retirement savings fund, I've got the perfect book for you. If you're a seasoned personal finance aficionado, I think you'll find this to be an excellent resource too. I'm talking about Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School by Andrew Hallam.
Andrew reached millionaire status before he turned 40 on a teacher's salary. Did he win the lottery, pick some hot stocks or inherit a whack of money? None of the above. He just followed nine simple rules and has generously shared them with the rest of us in this book.
As with most potentially complicated endeavours in life, the means to growing your wealth can be boiled down to a few essential, timeless truths. While all of Andrew's nine rules are wonderfully useful, if I had to boil them down further, I would choose Rule #1: Spend Like You Want to Grow Rich.
Many of us believe that we need to be really intelligent, or lucky, or both to accumulate wealth over our lifetime. The reality is that it's not rocket science. If you can consistently spend less than you earn and wisely invest the difference, you're well on your way to financial freedom.
Where most of us fall down (myself included) is getting caught up in the idea that we'll save after we've paid for everything else. If we simply reverse that process, we can save a whole lot more. Instead of spending on things we “need” and saving what's left, we can set aside our savings first and spend what's left. And we can always look for ways to increase our savings and decrease our spending – within reason. (Don't forget to budget in some fun!)
While there's a lot of detailed, yet concise information in Millionaire Teacher, a few main threads seemed to run throughout the book:
- Beware of mutual fund fees: these are often hidden in funds but can put a real crimp in your savings over time.
- Car-buying tips: Andrew has some great ideas on how to keep your car from becoming a huge hole in your pocket.
- Start saving early to unlock the magic of compound interest.
- Don't even think about investing until you've gotten rid of your consumer debt.
- Buy a home you can afford even if interest rates double. (Hat tip to Andrew's Mom on this one! :))
- Invest in low-cost index mutual funds or ETFs.
- Rebalance your stock/bond allocation regularly.
- Specific ideas on how to break up with your mutual fund salesman.
- Where to find low-cost index mutual funds and ETFs whether you live in Canada, the U.S., Australia, or Singapore
Andrew advocates a passive investment approach where you simply invest a set percentage in stocks and bonds and rebalance when the asset allocation gets too far out of line. While I think this is a decent strategy for the average investor – and even for most sophisticated investors – longtime readers know that I have mixed feelings about devoting all of your savings to a purely passive strategy. I like to take into account secular market cycles as well as personal risk tolerance and valuations.
Believe it or not, Andrew even has an answer for those who still like to dabble in individual stock-picking. Rule #9 allows you to take 10% of your portfolio and invest it in a few individual stocks. If you're right, you can kick your performance up a notch. If you're not, you haven't tanked your retirement plans. Not bad.
The Bottom Line
You can quibble with some of the fine details in Millionaire Teacher if you like, but the bottom line is that Andrew has produced a fantastic road map to wealth here. Whether you already know a little or a lot about personal finance and investing, this book is well worth your time – and it makes a great gift for those just starting out in life or investing.
As a bonus for those who aren't avid readers – especially of financial texts – this book is tremendously readable. Andrew takes you by the hand through the investment industry maze, melding hard facts with amusing stories and he does it all in less than 200 pages. Before you know it, you're finished.
You may or may not find your own pot of gold at the end of the maze. (Gold's not such a great investment anyway, according to Andrew.) That will be entirely up to you. But you will be enlightened and hopefully, empowered to take your financial fate into your own hands and design a better future for yourself and your family.
Feel free to share your thoughts below!