Oddly enough, it’s not about getting rich. “Having a big net worth is just an indicator of what this whole process is really about,” Hamm explains. Ultimately, it’s about freedom. That means no more worrying about money as we work at jobs we hate just to pay for things we can’t afford and probably don’t even need. Instead, we can control our schedules and spend our time doing whatever we want. “It’s a lot of hard work to climb that mountain,” Hamm admits. “But the air up there is the sweetest thing that there is.”
Conclusion
I really enjoyed reading this book. It’s clear that Hamm has spent a great deal of time studying personal finance (anyone who’s read that many books has to know a thing or two) and doing so has allowed him to present his ideas in a way that’s easy to understand. The book is also heavily footnoted, which makes it great for additional learning.
The section on how to earn more was disappointingly light and most of it was just generalised personal and career development. The same goes for the section on spending less. Many of the ideas were introduced very quickly with no explanation as to how they would actually save money. Perhaps there wasn’t enough room to go into detail (which is what the footnotes were for) but it still felt a little short.
The other problem with the section on spending less is the fact that the 100 items were listed in a somewhat haphazard way. It might have been better to have them clearly categorised (e.g. food and cooking, home and appliances, banking and investments, shopping and gifts, friends and entertainment, cars and transportation, etc.) much like was done in 66 Ways to Save Money.
But my main concern with the book is the order in which some sections were presented. Firstly, Hamm puts earning more ahead of spending less whereas it might be better off the other way around. This is consistent with Robert Kiyosaki’s suggestion that we first learn to live within our means (spend less) before we expand our means (earn more). More money often means more problems given that people will likely increase their spending instead of using it to save more. Perhaps the reverse order was just an oversight given that the illustrations on the front cover actually have spending less ahead of earning more.
The section on managing money also had some of the ideas ordered a little differently than ideal. My belief has always been to focus on numbers instead of segregating accounts and decisions into mental silos. Each priority, regardless of whether it’s an investment or debt, should be ranked on interest rate. In almost all cases, credit cards are on top, which is why Hamm correctly suggests you pay these off before you do anything else. This is also consistent with The Economist’s special report on pensions, which makes the point that it might better to first pay off certain debts before you save for retirement.
As written in The Beauty of Debt: “You must get rid of credit card debt even if this means tapping into your rainy day reserve (which you can replenish later). It makes no sense to have a stash of cash sitting in a savings account earning 5% interest when you’re incurring three times that amount on credit card and other debt. A lot of people don’t make the connection that increasing income (in a savings account) and decreasing expenses (on your debt repayments) are the same thing. They get stuck in what behavioural economists call ‘framing’ (viewing the same thing differently just because it happens to be phrased a little odd).”
The problem comes when Hamm suggests opening an emergency fund before paying off your mortgage. I disagree. As continued in The Beauty of Debt: “[If] your mortgage rate is high, it might be better to sell an investment offering lower returns in order to pay it off. Much like with high interest credit cards, you forget about having an emergency fund because your home equity line of credit fills that role. Obviously, this means that whatever would have gone into your savings account must go into your home. Blowing it elsewhere defeats the point (and is the reason so many people got into trouble when house prices came down).”
Flexo agrees: “Since it’s unlikely that you can earn more in savings than you can “earn” (reclaim) by paying off your debt, all your unused income after paying expenses (necessary and discretionary as you see fit) should be dedicated towards the debt account with the highest interest rate.” Still, I understand why Hamm recommends his approach. It requires a great deal of discipline (severely lacking in our culture) not to treat your home equity line of credit as a piggy bank for unnecessary toys. But I strongly believe that it’s the most efficient way and something those with self-control should consider (after seeking appropriate advice).
Ultimately, this book doesn’t cover absolutely everything you ever really needed to know about personal finance. Some aspects, like taxes, insurance, and estate planning (not to mention charity and giving back), are left out even though these are important considerations for people at all levels of wealth. Still, I think this book is one of the best places start your journey to a better financial life. Some people might need to dig deeper depending on their financial goals but the safe suggestions here are more than enough for most.
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