Book Review – The Happiness Trap by Russ Harris

This book was recommended (and purchased for me) by Mrs. 39 Months. Followers of the blog may have noticed a little manic/depressive streak in some of my writings. While I have often chosen to take the happy road in life and avoid unhappy/depressive thoughts, I can get into a “funk” at times. I also have quite a temper (inherited from my Dad’s side of the family) that was probably pushed further when my parents got divorced when I was very young. Now, any time that I (or both of my siblings apparently) feel things are not in their control, we tend to go bezerk and overreact. My younger brother has broken things, as have I (and I suspect my older brother has as well). This also leads to some very aggressive driving at times, which is not good for anyone.

Mrs. 39 Months has been tolerant at times, though she has often expressed either concern or anger at how I overreact. I assumed this was why the book was purchased.

The general thesis of the book, however, is that the desire to be happy all the time is not only impossible, but also fly’s in the face of our natural selection process. The humans that survived were the ones that were cautious, careful, and who assumed the worst (and were surprised when it worked out). Those who assumed things were good when they were eating the berries got an unpleasant surprise when the lion jumped out and ate them.

Thus, we have been bred to plan for the worst, to look out for potential pitfalls, to worry, and to make plans to overcome problems/issues in case they pop up. That is why it is impossible for us just be happy for any extended time. Strike any bells for those FI people who have retired?

The book has three parts:

  1. How you set the happiness trap: Goes through the reasons we can’t “just be happy” and how we smack ourselves around when our natural instincts get in the way of just being happy
  2. Transforming your Inner World: Detailed steps on how to deal with unhappy thoughts and feelings. Here the author uses Acceptance and Commitment Therapy (ACT) to show how, instead of suppressing your unhappy feelings and worries, you can allow them to exist and to work with them, and continue to work towards your goals. There are over 23 methods discussed, and the author urges you to try them and go with the methods that work for you
  3. Creating a Life worth living: A series of exercises that will be very familiar to FIRE folks. The exercises help you identify your values, set long and short-term goals face fears and move on towards a meaningful life.

I have to say, after reading through it, I identified many of the issues that kept me from being happier and moving towards my goals. Following some of the methods in chapter 2, I have been able to come to terms with my anger and let a lot more “roll of my back.” It has been very helpful and Mrs. 39 Months has noticed the difference.

I am just starting to dig into the third part (I have read it, but have not done any of the nine exercises yet). Looking forward to seeing how matches up with some of the work I have already done.

I would rate it an A, and a good book for those interested in why they “can’t just be happy.”

Mr. 39 Months

Book review: The Next Millionaire Next Door

Most folks in the FIRE community have read the classic book by Thomas Stanley and William Danko, The Millionaire Next Door. Written in 1996, the book exploded many of the myths of the wealthy in America. Having done research on US millionaires for over a decade, the authors had the “goods” on them. Over 80% of the Millionaires were first generation (i.e. no inheritance) who did it be hard work, frugality, and the smart allocation of resources. The book also detailed how many of the folks who “look wealthy” are not. They are often living paycheck-to-paycheck. How many folks in the FIRE community have seen that?

Since it was first published, Thomas Stanley has gone on to write three other books on the topic (The Millionaire Mind, Millionaire Woman Next door, and Stop Acting Rich). Each of these added additional data points on US Millionaires, and the ones who were trying to “look rich.” While compiling updated information for the 20th anniversary of the original book, Dr. Stanley was killed in an auto accident. His daughter, Sarah Stanley Fallaw, was assisting in the data collection and analysis, and felt honor bound to finish the book her father has started. Thus, The Next Millionaire Next Door.

The book seeks to answer the question, has the path to wealth changed in the 20 years since the original was written, and if so, how has it changed. Unsurprisingly, the book provides details that the same things that lead to wealth in 1996 (frugality, hard work, etc.) still work today, in some cases, even better. The book details the opportunities that are available, and blows apart new myths that have developed since 1996. In addition, there are significant parts of the book that discuss the FIRE movement, and its relationship to the book’s topics.

For many folks who have read the original, this book will not offer very many insights or original ideas. It validates the previous work with new data, new ideas and updated links. Still,  I think it’s a valuable book to read, as it helps arm the reader with data and arguments against those who state that the current time period is nothing like the 1990s. The basic building blocks of wealth are still there, and still working.

I’d grade the book a B.

Mr. 39 Months

Book Review – The Power of Zero by David McKnight (revised and updated)

An excellent book that starts from the basis that taxes will be increasing. The book is short, but full of good information and ideas for the reader. This book has been revised from the original 2013 edition, to take into account the new tax law changes that are coming into effect in 2018.

The author talks about the all the underfunded mandates of the federal government (Social Security, Medicare, etc.) and how the future must see a rise in tax rates in order to help fund these costs. He jokes about a CPA on a national radio show who talked about the grim financial situation of the country and asked listed to come up with a four-letter word to explain the problem. After shooting down “debt”, “wars” and “kids, he finally gave the answer – “Its Math.” The key question of the book is “are you prepared?”

The first part of the book, the author goes into some detail of our current financial situation in the US, the history that led us to it, and how politicians have tried to deal with it (or not deal with it) over the last hundred years. He states that due to these issues, the tax rates are due to rise, in some cases dramatically. He then posits and answer – do what you can to get your tax rate to zero, so that even if the tax rates double, it won’t affect you. The method involves using the historically low tax rates now, to put you in the driver’s seat in the future.

The Author then goes into the three primary buckets that people have their retirement finances in:

  1. The taxable bucket (brokerage accounts, savings accounts, etc.)
  2. The tax-deferred bucket (401Ks, 403Bs, Regular IRAs, etc.)
  3. The Tax-Free bucket (mostly Roth IRAs, non-deductible IRA, )

For each of these, he discusses their strengths, weaknesses, optimum uses, and optimum amounts to have in at retirement, based on the current tax code. He doesn’t discuss asset allocation (% of stocks vs. bonds, etc.), just the amount that should be in each, based on the 2018 law. For example, with 401K/IRAs, if you can keep your RMD (required minimum distribution) under the standard tax deduction ($24K for 2018) then that money comes to you tax free.

The author also covers a Life Insurance Retirement Plan (LIRP) which is a method of using a life insurance policy to put away money tax free, and then withdraw it tax free in the years ahead. It’s a complicated product, and doing it incorrectly can cause you to have tax penalties. Depending on the policy, it also can be used to help pay for Long-term care. The author lays out its advantages, but also urges the reader to get professional assistance in setting it up.

The author closes out by going through a case study, and showing how an individual can take advantage of today’s tax rates to set themselves up for being tax free in the future. Some of the methods include:

  • Using money in bucket 1 (taxable) to pay the taxes for assets in bucket 2 (tax-deferred) into bucket 3 (tax free)
  • Shifting the deposits from your paycheck from a tax-deferred item (like a regular 401k) into a tax-free item (Roth 401K or Roth IRA)
  • Using LIRPs to save tax-free money and prepare for potential costs for Long-Term care
  • Using the rule 72(t) to begin accessing your 401K/IRA before age 59-1/2
  • Using the standard deduction to be able to access some of your tax-deferred money in retirement
  • Dealing with Social Security and Pension payments as you seek to remain at a 0% tax rate

I’d rate it an A, and a must read for any FIRE person who wants to learn about how to handle their money going into retirement.

  • MinaFI walks through how he is going to use a similar strategy to pay $0 in income tax

Mr. 39 Months

Book Review – A Random Walk Down Wall street by Burton Malkiel

This classic book was originally published in 1973, and has been updated every few years to reflect updated data (the version I purchased was from 2003, so it had the dot.com bust in it, but not the 2008 meltdown). The general theme of the book in 1973 was that “an investor would be far better off buying and holding an index fund than attempting to buy and sell individual securities.” Over thirty years later, the data still bears out this lesson – one that most FIRE folks agree with.

Why follow-up editions over the last 30 years? The author states that there have been enormous changes in the variety of new financial instruments over that period, and these will need to be evaluated against the basic thesis of the book. Overall, it’s a very “readable” book, especially for those with an interest in investing and financial instruments.

The first part of the book is a history course of investing down the years, starting all the way back with the Tulip Craze of the 17th century and moving through the great depression, the 60s, 80s, and all the way up to the dot.com bust. In each era, the author points out the prevailing investment theories and provides data on how they performed. It’s a great read for those who want to understand how people have been investing throughout the centuries.

The second part of the book describes the current state of the investing world, and describes, in detail, the two main theories of stock analysis (Technical and Fundamental analysis). He again goes into some detail of the methods of each, their strengths, weaknesses, and effectiveness based on history. In the end, the author uses the findings to state that “investors might want to reconsider their faith in professional advisors.” He notes that most do not beat the market average – although some do, and some do consistently. His final conclusion is that the historical evidence does not support a theory that professionals can do better than the individual investor.

The third part of the book goes through more of the modern investing theory (Efficient Market Theory, Modern Portfolio Theory, etc.). Again, the author provides a wealth of data and comparisons so that the reader can make his own judgements. In the end, the data points to a very efficient market that is difficult for a professional to manage successfully and beat the market.

So what do you do then? The author provides a road map of exercises to follow to build your financial plan, including determining your objectives, insurance, tax avoidance, bond and other investments (real estate, precious metals, etc.). It’s a great read on how to diversify, plan for your life cycle, and winning the investment game. Just for the last quarter of the book alone it’s a valuable read.

I’d rate it an A, and a must read for any FIRE person who wants to learn about the Wall Street Game.

 

Mr. 39 Months

Book Review – Five Years before you Retire by Emily Birken

The title of the book intrigued me, since I started out my journey 39 months from retirement (currently with 23 months left, yay!). The objective of the book is to “layout what you need to do in the last few years before retirement to make sure your life post-career is financially comfortable and fulfilling.” It’s a big objective, and one we here in the FIRE community have been talking about for many years. In fact the author writes for several blogs that are in our community.

Please note that this book is aimed at a US audience, so for those readers outside the US, you will need to take the advice and translate to your country’s situation.

The initial four chapters cover some of the basic finance questions that folks who are nearing retirement.

  1. How far away are you?  (calculating current spending, resources, rates of return, calculating money needs)
  2. Saving and Budgeting for next five years (Ideas to maximize your savings and reduce your expenses in order to close the gap)
  3. Income in retirement (the 4% rule, bucket method for withdrawal, required minimum distributions)
  4. Find the right financial planner (Types, pay structures, questions to ask)

While many of these topics are covered in depth in various FIRE blogs, the book puts them all in one spot for easy reading. There are other ways to perform the calculations in the book, and you can search for others that appeal to you more – but at least it gives you an idea of the steps necessary at the time.

The second part of the book covers aspects of the government that need to be included in your retirement planning.

  1. What to expect from Social Security (Mechanics of SS, what you will get, survivor benefits)
  2. Taxes and your Retirement Income (Taxes on Social Security, 401K, Roth, other investments)
  3. What to Expect from Medicare (Part A & B, Drug coverage, additional costs)
  4. Planning for Health-Care Expenses in Retirement (Coverage if you retire early, Medigap, Disability and Long-Term care).

It covers the basics of government support and costs, and is full of good information. The discussion is chapter 8 covers the basics of seeking out health care if you retire before 65, but doesn’t have many details or links. The book still assumes that Social Security and Medicare will be available when you retire (something we are all a highly suspect of at this time).

The final section covers home, family and other considerations as you prepare to retire.

  1. Housing in retirement (paying off mortgage, staying put or moving, reverse mortgages)
  2. The Family Fortunes (discussions with family, estate planning)
  3. Creating a budget on a Retirement Income (Typical day, week & year, anticipated spending, budget)
  4. Common Retirement Pitfalls (Relying on factors outside your control, 9 others)
  5. If you Don’t have enough saved (work longer, cut spending, change plan)

One of the great things about the book is that, at the end of each chapter, there is a countdown of the topics covered in the chapter, and what needs to be done 5 years before retirement, 4 years, 3, 2, and 1). It’s an excellent guide on the important aspects in the chapter. I would recommend this book for those just starting out on their FIRE journey, or if you want to give the book to a friend or spouse who hasn’t embraced the FIRE lifestyle yet.

Grade B+

 

Mr. 39 Months

Book Review – The One Page Financial Plan by Carl Richards

It’s been a while since I did a book review. I have done a lot of reading on the internet (blogs, articles, etc.) but not many new books. Recently I saw an article on this new book The One Page Financial Plan, and it intrigued me. So I took the opportunity to purchase the book and read through it. So here goes.

First of all, those who are hard core FI people will find little for their number crunching here. The book is rather small on calculations, ratios, etc. If you are looking for a book to go through your investment strategies or net worth calculations, then there are other ones which will do a better job than this one. That is not the objective of the writer. Instead, he offers a less-number oriented, more “touchy/feely” type of financial plan book, as one might expect from the title.

The first part of the book is the “discovery” phase, where the authors uses some questions and exercises to help the reader determine the “why” for their financial planning (the most important question), the where (where you want to go, i.e. goals) and where you currently are (net worth, assets & liabilities, etc.). Again, very few numbers are discussed or worked through here.

The second part of the book works through spending and saving. He discusses simple ways to determine your current spending and how to create a basic budget. He then ties that back to the goals developed in the first section, and uses that to motivate the reader to save.

The third section discusses investing and other finance topics, including insurance (buy as little as necessary, but buy it), debt (good and bad), and basic, beginner investing – with a heavy emphasis on index funds, and buy & hold strategy. He finishes with some good information on the need for rebalancing. As before, there is a startling lack of numbers in these chapters – just basic common sense for the beginning investor.

The final section covers avoiding big mistakes that can sideline you (not hiring a good financial advisor to help teach you, always making the decisions instead of trusting the advisor, not panicking at market dips, etc.). His lesson is one of basic, boring investing over time.

In the end, I believe this is a good book for folks who are just getting interested in the FI journey, or for those passionate FI people that are trying to interest another (a spouse, a family member, etc.) in many of the concepts and ideas. It’s a great book for someone to get started, and then as they grow in interest and knowledge, they can seek out additional, more detailed information for those topics that interest them.

 

Mr. 39 Months

Book review – Meet the Frugalwoods

Recently Elizabeth Thames, more commonly known as “Mrs. Frugalwoods” came out with a book detailing their path to financial independence and a new life on a farm in central Vermont. Most readers know the basic story, as they have been following her blog (see link to right) for years.

The book is told entirely from Mrs. Frugalwoods point of view (she does include conversations with her husband often). It tells the story from her college graduation, her first job (making $10,000 while living in Brooklyn and working for Americorp), and then on to other locals, jobs and adventures. Along the way, she manages to save a large percentage of her income by living a frugal, but not extreme, existence.

After the two of them marry and move to Boston for work (and after they have bought a house) they decide to pursue Financial Independence. The two of them are having coffee/tea at a shop, and Mr. Frugalwoods shows her a spreadsheet with reveals that, based on cutting some of their current expenses (they were already saving about 45% of their take home pay), and then renting their house in Cambridge, MA, in 3 years and 5 months. they could purchase a farm in Vermont and be financially independent.

It is at that that the Frugalwoods blog starts, and they “kick it into high gear” and start to really save. It is this part of the book where she goes into some detail on how to trim expenses even more, and some of the steps they took to move towards extreme frugality. She even gave up her haircuts and had her husband start cutting her hair! As a budding FI person, this is the part that I like, the concrete methods used, the things I could learn from and copy.

The conclusion of the book has them reach their FI number, and at the same time, give birth to their first child, and buy their farm in central Vermont. All a happy ending, though the adventure for them is really only just beginning. I’m sure as you read her blog, you will get to learn more about their new lives.

As far as a finance book, I would have to say it was lacking a lot of the math and calculations that folks in the community are used to seeing. The book is lacking in net worth calculations, expense ratios, etc. As a numbers geek, I was hoping for more concrete examples of how they reached their goals.

If you look a good story of how one woman and her family reached FI and found a life that they wanted, it’s a good yarn.

 

Mr. 39 Months.

Book review: The Simple Dollar

One of the earliest FIRE books, written by a Trent Hamm, a Gen Xer who found himself buried under a boatload of debt and without a real plan for where to go (sound familiar to so many). Trent’s book goes through his initial struggles to get a handle on his debt and start a new plan, and then sequences into a series of “how to” and short idea chapters to help the reader identify numerous ways to save money, invest, reduce debt and move towards financial independence.

I’ve read some financial advisor reviews that really critique the book, because it is full of short, simple ideas for saving money and practicing frugality. Still, that is a key part of what we FIRE people have sought for, and many of his ideas are mirrored on the blog postings and podcasts that form the community. Each of his chapters concludes with a list of steps for how to put the ideas of the chapter into practice and move forward.

Some highlights:

  • Chapter 1: Trent finds himself with a new child, a wife, and under a mountain of debt. The chapter goes through his realization that there is a better way, and concludes with the steps he used to work his way out.
  • Chapter 4: Good chapter on goal setting, identifying to real dreams, and making plans to achieve them
  • Chapter 7&8: Chapters on Frugality, budgeting, and “minding the gap” between income and expense. A good start for folks just starting out trying to get a handle on their spending and to budget
  • Chapter 13: Dealing with friends, family and your newfound money situation
  • Chapter 17: What is holding you back, and preventing you from moving forward on the path towards financial independence and life tranquility.

Overall, the book had a lot of “conventional wisdom” that the FIRE community already knows. I believe it’s an excellent book to give to new people who are first getting interested in our ideas, and want to gain additional knowledge. For that purpose, I believe it’s an excellent book.

What books have you read that you’d recommend?

 

Mr. 39 Months

Book review: Multiple Streams of Income

The classic book, by Robert Allen, written in 2000. Many consider it the book that is the father of the “side hustle.” Written in 2000, the book tries to distill all the lessons and ideas from Robert Allen’s 20 years of books and seminars. He attempts to show you how to earn multiple streams of lifetime income, using a variety of strategies – each of which he goes into a great deal of detail on.

The key parts of these strategies is that they can be used:

  • On a part-time basis
  • Working right from home
  • With little or none of your own money
  • With fewer no employees
  • Using simple systems that have a proven track record

 

Sounds like its right up the FIRE community’s alley, right?

 

Robert starts off with some basic explanation on the time-value of money, compound interest, and how to leverage that towards financial independence. He then covers some basic money skills you will need (valuing money, controlling it, saving it, using it to achieve financial independence). He finishes up by covering the three “great money mountains” that his streams of income are built on:

  1. The investment mountain (screening and filtering, timing in, timing out)
  2. The real estate mountain (finding, funding, farming)
  3. The marketing mountain (internet, network marketing, infopreneuring, licensing)

 

Streams of Income

  1. Stock Market Success: Here Allen goes through some basic lessons on investing (invest for the long haul, how index funds beat 4/5’s of money managers, and how you should start investing sooner, rather than later). His thought is to place at least 50% of your investment dollars in index funds, and just let them grow. He provides links to common index providers (vanguard, TRowePrice, etc.) as well as additional reading on the subject.
  2. Accelerated Stock Strategies: For 30% of your investment dollars. Here Allen goes into more aggressive stock strategies, He covers four basic systems to gain enhanced returns above & beyond index strategy, and goes into detail on each of them. They include:
    • Invest with Warren Buffet
    • Select Mutual Funds with the longest-term track record
    • Select Financial Advisors with the longest track records
    • Consider high-powered sector funds
  3. Options trading: For the final 20% of your investment dollars. This covers the highly leveraged strategy of covered calls, and call/put options. This particular chapter might be worth the cost of the book, as this particular type of investing can be very confusing. Allen takes the time to explain how to do it in detail, and provides links and methods to performing the trades. If you’ve ever wanted to find out about this type of investing, here is a short and simple 28-page chapter that can get you started.
  4. Real Estate: This chapter covers the basics of real estate investing, both for those who are looking to be landlords, and those trying to fix& flip. Excellent chapter to provide the basic tools and techniques for real estate. Allen divides the chapter into three areas:
    • Finding: How to do the research to find bargain properties in the right area
    • Funding: How to fund your real estate investing with minimum up front money
    • Farming: How to create cash from your real estate, primarily through buying & holding/renting
  5. Foreclosures and Flippers: Allen discusses short-term bargains here, primarily gained through foreclosures. He discusses some of the methods to acquire foreclosures (pre-foreclosure, Post-foreclosure, tax sales, etc.). He then discusses the benefits to be gained with quick flipping of properties. Much of this has been written of in much more detail on the internet and through TV shows, but he does cover a lot of the basics and pitfalls of the strategy.

In the next chapter, Allen goes into more refined real estate strategies, providing a good summary view of them (though you will want to do your own research on some of these complicated plans). They include:

    • Wholesale real estate (you identify and setup deals, then pass off to another)
    • Angel real estate investing (you provide capital)
    • Bird dogging (another investor provides capital)
    • Split for cash (splitting property up and selling portion)
    • Conversion (converting from one class of real estate to another)
  1. Paying other people’s taxes: In this way, Allen shows how you can purchase tax lien certificates on other people’s property for pennies on the dollar. You can then use the leverage of these liens to either get your full payment of tax funds, or repossess the property. Often this amounts to 16%, 20%, 25% or greater return. Depending on your state and local laws, the profits can be very good
  2. Network Marketing: Yes, network marketing can be another tool in your toolbox towards reaching a continuous stream of money. Allen goes through some of the problems in the past with network marketing, and some of the issues to be on the lookout for (need to buy inventory, etc.). He provides a list of questions to ask for potential markets you might get into, and strategies to select the right company, compensation plan and marketing system. Network marketing has proven itself to be lucrative for some in the past, so it should be something to consider.
  3. Infopreneuring: This is one that the FIRE community is very familiar with. It involves using your expertise/passion/hobby and turning it into a lifetime cash-flow stream. It could be a book, a how-to series of podcasts/videos or other mode of information. They key is to identify and research a market, produce a useful product, and market it. Allen provides some good questions to ask and methods to develop your opportunities. I think this is also a very useful chapter.
  4. Licensing: This is a step beyond Inforpreneuring and Network Marketing. The concept is to license your ideas to others, and let them do the hard work of brining them to market and generating income. You will simply take a cut of the hard work. You can also license others idea and do the work to profit from them, while paying them a portion of the income. Either way can work to generate another income stream for you.
  5. Internet marketing: Obviously, with the book written in 2000, this was a “new thing” and a new way to generate an income stream. Allen goes through a wide variety of ideas, most of which have become common place in our modern world. Still, its good to see Allen’s marketing mind go through all the potential uses of the internet.

 

Allen finishes his book with ideas on how to shield your income streams from others, including legal tax strategies, ways to protect your intellectual property, and methods to continue the streams past your lifetime, so your heirs can enjoy them as well.

 

All in all, and excellent book, and well worth a read.

 

So what have you read lately that you find interesting?

 

Mr. 39 Months