“The Wealthy Barber” – Chapters 1-4

The book has been fairly enjoyable so far, though it started off pretty slowly with a lengthy story of how he finally made it to the barber shop (in chapter three) to talk to Roy “the wealthy barber” about finance (in chapter four).

There are essentially seven lessons that Roy will teach us over the course of seven to eight months (“book time”), each time the author returns to the barbershop. Chapter four “The Ten Percent Solution” is the first lesson and the 35 pages are pretty succintly summed up in the following bulleted list:

• Have 10% of your income automatically transferred to a brokerage account which accomplishes two things:
1. it’s automatic so you won’t forget to do it – hopefully you’ll forget that it’s even happening
2. A consistent 10% accomplishes the “dollar cost averaging” that makes a lot of sense for most of us as investors

• The money should be invested for the long term in mutual funds because:
1. Mutual funds are somewhat diversified (relative to individual stocks) by definition
2. Buying and selling stocks frequently is a nearly sure way to lose money
3. The average investor doesn’t have enough time to get good at trading stocks
4. Even professional stock brokers usually don’t beat the market
5. The mutual fund will be managed by a professional (I found this a little contradictory given the above point regarding stock brokers – perhaps he’s making a distinction between them and mutual fund managers)

• Be sure to do your research before selecting mutual funds because they’re not all created equal.
1. Find one with a good track record and make sure the person responsible for that record is still there (and focuses on value and growth)
2. Invest in global (which includes the US and other countries), well-diversified funds
3. Avoid the prevailing “wisdom of the day”
4. Keep an eye on the commissions you’re paying – you’re usually better off with funds that have a low commission or “load”

• Instead of taking out an $18k loan for a nice car, take out the $18k loan for a down payment on a rental property. The renter helps pay the mortgage and you can sell the house (an appreciating asset) at the end of the 5-year loan for a significant profit instead of just owning an expensive car (a depreciating asset that’s worth far less at the end of the 5 years).

I have two minor criticisms (that I’ve heard/read elsewhere) which are the following:

1. This book is very much like the “Rich Dad, Poor Dad” series in that you can tell that the conversations between the characters are at least partially embellished and at most completely invented/contrived.
2. There’s very little “new” information in the book if you’ve read other books on personal finance. It’s generally sound, tried-and-true advice in storybook form.

The author actually did make me laugh out loud the first time I picked up the book, even though most of the humor is a little predictable. One or two of his jokes hit me just right.

Even so, I’m looking forward to a reading this slightly different perspective on the subject of personal finance.