Category: Money

 The Total Money Makeover shows you that you’re not as financially secure as you think, that it’s time to stop accepting debt as normal and that all it takes to build the financial future you want is a seven-step plan.

There are tons of books out there that supposedly teach you how to become a millionaire. While some of this advice works, and some doesn’t, most of us dream about making millions when our bank account balance isn’t even at zero yet – it’s negative.

I hate to be the one to say it, but chances are you’re being irresponsible about money, right now. I’ve been there. Growing up I never had to work a day in my life. I could always get what I want – most of the time, anyway – and if I just saved a bit of my birthday money, I could usually buy that new Xbox or laptop within a matter of months.

But if you’re serious about building a happy and truly fulfilling life, it can’t go on like this forever. Lucky for you and me, Dave Ramsey’s here to save the day. The Total Money Makeover is the most popular personal finance book of all time. It has sold over 5 million copies since its publication in 2003.

To get you started on your own journey towards financial fitness, here are the first 3 steps you have to take:

• Put away $1,000 in an emergency fund.
• Start paying down your debts, beginning with the smallest.
• Grow your emergency fund until you have a three-month bufferat least.

Ready to start your total money makeover? Time to take the first steps!

Lesson 1: Save $1,000 in an emergency fund.

If you crashed your car right now, could you even pay the mechanic in cash? I’m serious. Most people can’t. They’d have to use their credit card. If you think that’s bad, consider you or your child suddenly gets sick and racks up a $1,000 hospital bill.

Ouch! According to Money Magazine, 78% of us will experience a major bad event in any given 10-year period of our lives. That’s why Dave Ramsey’s first step to getting on top of your finances is to save $1,000 and put it away in an emergency fund.

More importantly, even, this teaches you two things:

It’s okay to tackle your finances step by step. You can’t start with all of your debt, investments, and savings at once, and that’s fine.

It gives you the confidence that you can indeed save money and helps you approach the next step without fretting.

Of course, $1,000 doesn’t cover all that much, but it’s a great start and will make you less likely to take on more debt.

Lesson 2: Start a debt snowball, beginning with your smallest debt.

The next step is to start what Ramsey calls a debt snowball. If you form a small snowball and roll it down a hill, it’ll pick up more snow and thus more speed, quickly growing into a huge and powerful snow boulder.

When you pay off your debt, you can use that same effect to your advantage. List all of your debts and order them by size, starting with the smallest. Then pay off the first one. Yup, even if it’s just the outstanding $10 for your phone bill or some money you owe a friend.

The smaller you start, the better. Each crossed off debt that disappears off your list gives you the confidence you need to take on the next, bigger thing until only your gigantic mortgage is left – but by then you’ll long have what it takes to get rid of it once and for all.

Personal tip: I’m not sure if this is Ramsey’s approach here, but I’d start with taking 10% of my income to pay down debt. No matter how much or how little you earn, you can (hopefully) take 10% away from it without losing any essential financial capability (like being able to pay your rent).

Lesson 3: Grow your emergency fund until it covers your expenses for at least three months.

If your boss fired you tomorrow, could you pay for rent and food for the next six months? No? Maybe three? No? Then I hope your alarm bells start ringing right now.

The worst financial setbacks are always the ones that creep up on us without us even realizing it, and just knowing you can survive for half a year no matter what is a massive, comfortable cushion. Ramsey suggests turning your attention to your emergency fund again, as soon as you’ve started paying off your debts and growing it until you have at least 3 months of living expenses in it.

For most individuals and families, this number lies somewhere between $5,000 and $25,000 and isn’t fixed. But if your household earns $3,000/month, you should save at least $10,000 or more.

Personal tip: Because keeping debt is more expensive than not having the money you save to spend, I’d initially spend more towards paying down debt and less on savings, for example, 10% on reducing debt (as mentioned above) and another 5% of your income can go into growing your emergency fund.

My personal take-aways

Debt is always your worst expense. Even if it’s not the biggest absolute dollar amount you pay each month, it is your worst expense because it grows over time. With every percentage point in interest, you owe more money with each passing day.

The biggest advantage you can have in building wealth is starting. With The Total Money Makeover, Dave Ramsey has delivered the perfect blueprint to doing just that. Great summary with all seven steps, read it, get going, then use the book to take care of the finer details!

The Personal MBA will save you a few hundred grand by outlining everything you really need to know to get started on a thriving business, none of which is taught in expensive colleges.

Josh Kaufman worked at Procter & Gamble, one of the world’s largest producers of consumer goods (things like shampoo, deodorant, toilet paper, toothpaste, lotions, soap, and even foods and drinks). Until 2011, that is, when this book completely blew up.

Now a full-time researcher, dad, speaker, husband and writer, Josh’s work has attracted millions of readers to his blog, with the book selling several hundred thousand copies.

It’s a go-to manual for the not-yet business savvy, putting an MBA’s worth of education into a few hundred pages – except that you don’t have to shell out $100,000+ and that what you learn works in the real world, not just a classroom.

Without further ado, here are 3 lessons from The Personal MBA:

• Make sure your business addresses at least one of the four core needs.
• Think about the context of your marketing message.
• If you ever need to make a deal, do the work up front, sothe negotiation becomes easy.

Ready for the education of a lifetime? Here we go!

Lesson 1: Address one of the four core needs with your product to make selling easy.

Have you seen The Wolf of Wall Street? There’s a scene where Jordan Belfort asks one of his employees to sell him a pen, who then uses a clever trick to make it an easy sale: he asks him to sign a napkin. Of course Jordan hasn’t got a pen, but luckily, the solution is right in front of him.

Any sale is easy, as long as you’re addressing your customer’s primary need in the current situation. A thirsty hiker in the desert would pay anything for even the shittiest bottle of water and car collectors will happily wire $3 million for a car, simply because it’s limited to 10 units.

But to address those needs with your marketing tactics, your product needs to be something that takes care of those needs. Josh says there are four core needs most products serve:

Our desire to collect things.

Our wish to bond with other people.

Our need to learn and satisfy our curiosity.

Our need to fight for our survival and protect our loved ones.

The next time you strike up a business idea, ask yourself which of these four needs it’d serve first. Only if you can definitely assign it to at least one category, move on with the next step.

Lesson 2: Think about the context you deliver your marketing message in, so customers understand it right.

Here’s a big one no one thinks about in their marketing: the way you choose to communicate your message in matters just as much, if not more, than what you actually say.

As Gary Vaynerchuk put it years ago: Content is king, but context is god.

Yes, what you say has to matter. It has to be remarkable, different, memorable, all of that stuff. BUT, if you screw up the timing, the platform and the tone of how you address your audience, none of that matters, because no one will listen.

For example, Four Minute Books runs on weekly emails I send out with new summaries. Imagine instead of one longer email newsletter I’d send out a new email every day, that’s just as long as a tweet. No one would open them and people would be gone in a jiffy.

Why?

Because everyone has an overloaded email inbox already. Nobody wants more email. Plus, if I could say everything I needed to say in 140 characters or less, why wouldn’t I go to Twitter right away?

Think hard about the medium and channels you choose for your marketing, they make all the difference.

Lesson 3: If you ever need to make a deal, do the work up front, so the negotiation becomes easy.

Sometimes in business, you have to make a deal. Most of us have zero experience negotiating, but here’s a good tip to make it less scary to sit down at a table with someone and work out a contract:

Do the hard work up front.

According to Josh, that means setting the stage long before your meeting, for example by making sure your opposite other is someone who can actually decide things, and wasn’t just send to collect information about you. It also means choosing the setting you think you’d do best in – for example you might be a lot more confident on the phone than you are in person.

Then you can clarify many of the terms of your proposal in anticipation as well. For example, think of the conditions that are most attractive to your negotiation partner and try to see if you can come up with even more of them, or how you can make your offer look superior to those of your competitors. Similarly, guess what objections the other party might have and how you could counter them.

Lastly, you can make a list of concessions and compromises you’re willing to make, in case you can’t agree on certain points.

With these things in hand, the negotiation itself will be a lot easier, because you’ll feel prepared and have many points to work with, as opposed to just fighting a battle of wills when you’re sitting at the table.

My personal take-aways

This is a great book for anyone, who doesn’t have a clue about business, because they mostly study and work in other fields, and for all college business students, because it might spare them another year and a few hundred grand.

You can think of this book as a “START HERE” page on one of the world’s best blogs about business. Highly recommended!

The One-Page Financial Plan is a refreshing, fun look at personal finance, that takes away the feeling that financial planning is a burden for the less disciplined, and shows you that you can plan your entire financial future on a single page.

Carl Richards does two things well:

Give people financial advice.

Draw funny sketches.

No matter whether you’re a visual person or not, you can definitely benefit from the first one, which is the result of him spending over 40,000 hours throughout the last 20 years as a financial advisor, working at Wells Fargo, Merrill Lynch and a bunch of other household names.

All of the conversations he’s had over the years have gone into this book, which’ll help you commit to a personal finance process that works for you, and stick with it.

Here are 3 lessons to help you get your finances on track:

• Set some goals, but stay flexible and fine-tune along theway.
• Turn budgeting into a game to make saving fun.
• View paying off debt as an investment in your future.

Got your pen and (single piece of) paper? Let’s plan your finances!

Lesson 1: Set specific financial goals, but remain flexible and fine-tune as you go along.

Think of mobile phones, 10 years ago. Would you ever have guessed that you could call and text anyone, anywhere in the world, for a flat rate fee of a few dozen dollars a month?

Not too long ago, our phone bills made up a big chunk of our monthly expenses, but today, they’re basically non-existent. Nobody could’ve guessed this, which is why you should treat your financial goals like a vacation: make a solid plan, but leave some room for unexpected surprises.

For example, setting the goal to pay off your $50,000 student loan within the next 3 years is a fantastic target to shoot for. The only thing that’s better is having the guts to admit that after you totaled your car in 2018 and had to get a new one, it’s just not going to happen. If you’re flexible enough to do that, you can settle on paying off $30,000 in the same period and still feel pretty good about yourself.

So whatever you do, remember that you can always adapt when your situation changes.

Lesson 2: Turn budgeting into a game to make saving fun.

Do you think budgeting is just the world’s way to punish those with little discipline? Then it’s time to shift your perspective.

Instead of focusing on the boring aspects, view budgeting as a way to track where your money goes and measure how that stacks up against your goals and values, so you can adjust when something’s off.

More often than not, we say we want to travel the world and go to Vietnam this year, but in reality end up spending 20% of our income on parties, beer and eating out. This means we’re not living in alignment with who we truly are and therefore, needs changing.

To make this change fun, turn budgeting into a game. Start by making a list of your fixed costs, the expenses you can’t change (like rent, your phone bill or car insurance), so you can then look at where you can really cut costs.

Then you can start taking on little saving challenges, like trying to bike to work three out of five days of the week, cooking your lunch in advance for two weeks, or only going to the movies when tickets are on sale.

For example, last year I only ate out twice a week on the weekends for two months. I ended up really enjoying the dishes I bought and learned how to cook new things.

If you have a partner, this becomes even more fun, because you can compete against each other, for example by betting who can survive the week with the least transactions under their belt.

Lesson 3: Think of paying off your debt as an investment in your future self.

Just last week I found the idea to start eliminating your debts by paying back the smallest one first, and really liked it. In that same summary, I also realized that debt is always your biggest expense. If that’s true, then Richards’s approach also makes a lot of sense. He suggests you pay down the one with the highest interest rate first.

The reason why is this: Paying off your debts is not so much fulfilling an obligation, but rather an investment in your future self.

Every dollar of debt you rack up on your credit card, especially the ones spent towards the things that don’t really align with your goals, like those beers or fancy dinners mentioned above, is a dollar that’ll keep you busy paying interest down the line. But when you’re busy paying interest, there’s no way to save for what you really want to do. Therefore, the higher the interest rate, the more important it is to get rid of that particular loan.

Taking on debt and having to pay interest means you’re saying no to your goals later and yes to something else right now. Think about how important that “something else” really is and either add it to your goals or stop spending money on it.

You’re creating your financial future with every single dollar you spend – and you’re moving twice as fast if that dollar comes with a fat bag of interest attached to it.

My personal take-aways

The One-Page Financial Plan brings a new, fresh perspective and comes with tons of cool illustrations. The way it looks at planning your how your money comes and goes sure sounds like a no-headache approach to personal finance. If you’re not on top of your finances, go give this a read!

The Millionaire Next Door shows you the simple spending and saving habits that lead to more cash in the bank than most people earn in their life, and helps you avoid the pitfalls some potential future millionaires make on their way to financial independence.

It always makes me sad to hear a great author has died of unnatural causes. In Thomas J. Stanley’s case it was a drunk driver, who tried to cut him off in traffic, crashing into his Corvette (one of his few luxuries) and fatally injuring him at 71 years old.

This book, which funnily made him and his co-author millionaires, was published in 1996 and has sold over 3 million copies to date. Stanley was obsessed with studying the wealthy, whom he called “the affluent”, and what discerns them from those he calls UAWs – under accumulators of wealth.

As it turns out, becoming a millionaire is not rocket science, just a matter of planning well, living below your means and avoiding a few stupid mistakes. Want to know how?

Use these 3 rules to improve your chances of ending up with a million dollars in the bank:

• Save responsibly from the moment you first start earning more than you need to live.
• Use this simple formula to calculate if you’re falling short of your financial potential.
• Avoid economic outpatient care to reach your goal.

Committed to making your dream of financial independence come true? Let’s see if you can keep these rules!

Lesson 1: Save responsibly from the moment you first start earning more than you need to live.

Most people think the only way to become a millionaire is to earn at least $1 million/year for a couple of years. But even if you’re one of the top earners in the world, taxes will eat away roughly 50% of your annual income. Deduct living expenses, maybe a mortgage and a few vacations and you might end up with just $200,000 – if you’re lucky.

However, that would indeed make you lucky, because you never even have to earn a million dollars in a year, in order to become a millionaire.

Not with this one rule anyways: The moment you earn more than you need to live, save as much as you responsibly can and avoid spending cash on things you don’t need.

Budgeting well and living a frugal life is really all you need to build wealth (especially if you’re still young). Around 55% of all millionaires attest their wealth simply to being deliberate about their finances and disciplined saving.

Note: For the youngsters: If you’re not out of college yet, remember this at all costs (haha), so you can instantly start saving half or even more of your income, once you start your first job.

Lesson 2: Calculate if you’re not reaching your full financial potential with this simple equation.

Stanley has come up with a simple formula to calculate your expected wealth:

Multiply your age with your pre-tax annual income and divide by 10.

Whatever this number is, it reflects how rich you could be right now, if you’ve already cultivated good spending habits. For example, if you earn $80,000 at age 30, your expected wealth comes out to $240,000.

Take this with a grain of salt, since it takes younger people longer to reach their expected wealth, because of compounding interest – a 50-year old will have reaped the benefits of the interest they get on their interest for much longer, for example.

However, it’s still a good indicator of how well you stack up and can keep you from becoming a big-hat-no-cattle-type. That’s someone who appears wealthy (like a farmer with a big hat), but in reality spends all their money on keeping up this illusion (and thus has no actual cattle).

Try to get closer and closer to your expected wealth over time, not by saving excessively, but by avoiding spending too much.

Lesson 3: Don’t fall for economic outpatient care to see your bank account go to seven figures.

Do you know how kids with rich parents often can’t handle their finances and never worry about spending?

That’s what economic outpatient care (EOC) is all about. Most affluent parents mean well when they support their children with their hard-saved money, but in reality it hurts their ability to handle money.

Almost half of all wealthy Americans sponsor their children and grandchildren with over $15k/year, which leads them to acquire the according lifestyles, even though they technically can’t afford them.

I’m not American, but in hindsight I think I too have received that much each year and while I never went crazy and invested most of the money into my future (studying abroad, buying books, courses, travel, etc.), I still didn’t know how to save and grow my money until I started earning my own.

The problem with regular EOC is that it eventually just fades into your annual income, making you believe you earn more than you do, and even calculating with that money in advance.

What’s the lesson?

If you have rich parents, don’t waste their money – at least invest it wisely! If you are a rich parent, don’t spoil your kids – you won’t do them any good.

My personal take-aways

I like this book. It’s not one of those “just buy an apartment complex building that doesn’t suck” or “just make a business and sell it” type of books – you know, things which are just impossible without skills that take decades to develop. This is much more practical.

Most people could save half of their income or more, if they just didn’t buy as many bullshit things as they’re used to, and this is a book about how to make that happen, plain and simple.

The Little Book That Still Beats The Market is a step-by-step, plain-words guide to value investing, which gives you an exact, almost magic, formula approach to investing, which is guaranteed to make profits in the long run.

Joel Greenblatt is a legend. His investment company Gotham Capital boasted over 40% in annual returns over a period of 20 years, from 1986 to 2006. Joel follows in Benjamin Graham’s footsteps of value investing, which means buying undervalued companies with long-term growth potential at good prices, and then sit back as the world slowly catches up with what you already know.

In 2005, Joel thought about what gift he could give to his five children, that would keep on giving for years to come. Teaching them how to make money for themselves seemed like a good idea, and since his children were between six and 15 years old at the time, he’d have to keep it so simple anyone could understand.

The Little Book That Beats The Market was the result, and became an instant bestseller, since the simple formula telling you where to put your money spoke to a few more people than just his kids. In 2010 it was updated and expanded, hence the term “still” in the title now.

Here are 3 lessons to help you get the gist of Joel Greenblatt’s magic formula for investing:

• Look at earnings yield and return on capital to evaluate stocks.
• Rank and combine these two factors to find winning companies.
• Be patient, it’s what makes this formula unpopular, but effective.

Ready for a proven stock market blueprint you can follow? Let’s do this!

Lesson 1: Evaluate stocks based on earnings yield and return on capital.

Joel’s magic formula is based entirely on two typical numbers used to judge the quality of a stock, combined with a few rules and guidelines.

The first is earnings yield. This number tells you how many dollars you can expect to make, per year, for each dollar you invest in a stock.

You need last year’s earnings per share (how much money the company earned, divided by the total number of shares available), and the current stock price to figure it out. Dividing the two leaves you with a number in the format earnings per dollar, or, simply, your expected return in percent. For example, if last year, the company earned $0.85 per share, and now the stock price is $17, you divide 0.85 by 17, which leaves you with an earnings yield of 0.05. That’s an expected return of 5% for your money, or 5 cents for every dollar you invest.

The second number is return on capital (=ROC). This is calculated by dividing the net, after-tax profit the company made last year, by the book value (the number on their official balance sheet) of invested capital. This tells you how much of your investment the company turns into an actual profit. For example, if a $500,000 investment into a new steel production plant has yielded a $200,000 profit in its first year, that gives you an ROC of 40%, which is really good. Joel says anything above 25% is solid.

Lesson 2: Pick winning companies by combining these two factors and ranking them.

Okay, now what do you do with those numbers? You calculate them. For every single company available on a major US stock exchange, like the 3,500 you can find on either the New York Stock Exchange or the Nasdaq.

Then, you make two lists. On the first one, you rank all of the companies, starting with the one with the highest earnings yield. The second list you order by highest ROC. Now, you combine both rankings into one.

For example, if the company, which ranks first for earnings yield, ranks 153 for ROC, you add both numbers together, giving it a total ranking of 154.

In the end, this leaves you with a single, ordered list, telling you which companies perform best for both factors combined. Joel suggests you then invest into the 20-30 top companies on that list, and hold each stock for a year. After a year, sell winners and losers and repeat the process.

Note: Of course you don’t have to do all of this by hand. Joel’s come up with a nifty little tool to automatically calculate the list for you.

Lesson 3: Be patient, it’s what makes this formula unpopular, but effective.

How did Carl Richards say in The One-Page Financial Plan? The toughest thing about investing is that you have to be lazy, behave, and keep yourself out of new trouble, once you’ve set a good plan.

If you invested $10,000 in the US, based on Joel’s magic formula, in 1988, you would’ve turned those $10k into $1,000,000 by 2009 (yes, including the financial crisis). Fantastic results, right?

So why the hell doesn’t everyone do it already?

Because consistency is boring. If you follow this formula, you can’t tell your friends about “that new investing strategy you found” every 3 months. You can’t brag at all for a year, because only then do you find that year’s winners and losers. What’s more, this strategy actually might perform worse than the market at times (it usually does for one of every four years). Sometimes even two years in a row.

But if you rigorously stick to it, you are guaranteed to win. The sticking is the hard part.

That’s why money managers and financial advisors can’t use it. Their clients expect profits. Not just in the long-run, but every year. That’s nonsense, of course, but it forces analysts to resort to short-term strategies, just so they can keep their clients satisfied all year round.

You know better now. Don’t be greedy. Don’t be in it for the short term. Have some discipline. You could be a millionaire in 20 years.

My personal take-aways

This was great! So simple! Whether the returns are as great as proclaimed or not, I’m super intrigued to try this now. Might ask my Dad if he wants to split an investment. Once a year you put in a day of work and then not even look at your portfolio for 12 months. That’s my kind of investing.

The book itself is dead simple as well, and it’s only 200 pages, so two big thumbs up for The Little Book That Still Beats The Market.

The Little Book of Common Sense Investing shows you an alternative to actively, poorly managed, overpaid funds by introducing you to low-cost, passive index funds as a sustainable investing strategy, which gets you the retirement savings you need without the usual hassle of stock investing.

John “Jack” Bogle is a genius. In a time when everyone tried to beat the market with great stock picks and then charge expensive fees for it, he thought: “Why not just mimic what the indexes are doing and not manage anything?” This little thought turned into one of the most prevailing investment ideas of the following century, and one of the most respected investment companies in the world.

Bogle’s invention, the index fund, is still one of the safest and stress-free ways of investing today and in this little book he outlines why, and how you can get started with one.

Here are 3 lessons about the power of index funds:

Actively managed funds suck, because past profits don’t guarantee future success.

The majority of your money is best invested in safe, low-cost index funds.

You can’t go wrong by just choosing the cheapest index fund.

Ready for some common sense investing logic? Let’s invest in index funds!

Lesson 1: Actively managed funds suck, because past profits don’t guarantee future success.

It’s the same game, every single year. Come December, there’ll be a new, smiling face on the front of every finance magazine. Number one fund manager, analyst of the year, bla bla bla. Then, many people invest in that guy’s fund – and lose it all.

Just because a fund manager has a phenomenal year does not mean he can just repeat the same thing the next year.

The stock market changes so fast that the systems that worked in 1990 didn’t even work in 1991, let alone 2016. Every year what works changes completely. Of all the 355 mutual funds existing in 1970, only 34 are left today. But even those can’t guarantee you’ll get your money’s worth. After all, their managers are about to retire if they’ve been around that long.

So chances are most actively managed funds go down the tubes sooner or later. But what to do instead?

Lesson 2: Put the majority of your money in safe, low-cost index funds.

If actively managing money sucks, what should you invest in then? How about something that’s not managed at all?

Instead of paying excessive fees to watch your fund manager do a poor job and get less than the average market return, index funds are a great alternative.

They’re Jack Bogle’s gift to the world and work like this: An index fund that mimics what the Dow Jones does, has the exact same composition as the Dow Jones, just in fewer quantities. For example if 2% of the shares in the Dow Jones are Apple stocks, then 2% of the stocks in the index fund will also be Apple stocks. They’re only updated when the index that they model changes in composition, and are therefore a passive way of investing.

Because there’s no management, there are almost no fees (usually less than 1% per year) and since they model the overall index, returns grow slowly, but steadily, because they’re not affected by the volatility of the buy-low-sell-high-game most fund managers are playing.

But which of the 500+ index funds should you choose?

Lesson 3: Choose the cheapest fund to keep things simple.

Since all index funds work according to the same principles and promise returns similar to the overall stock market (which averages 8% a year), your best bet is the cheapest index fund that’s available to you.

The only downside to letting an index fund ride out long-term is the accumulation of fees. Therefore, the higher the percentage of profits is that you have to pay each year, the less you’ll end up getting.

There are funds like the Fidelity Spartan Index fund, with 0.007% annual expenses, and J.P. Morgan’s index fund with 0.53% in annual fees. Over the long run, even those pennies add up.

Since index fund companies’ expenses don’t correlate with their returns, you can safely pick the fund with the cheapest cost structure, that’s available to you and be done with it.

My personal take-aways

 I suggest you go straight for the full read. It’s called The Little Book of Common Sense Investing for a reason – it’s just over 200 pages.

1-Sentence-Summary: The Intelligent Investor teaches famous investor Benjamin Graham’s value investing approach to aspiring investors to help them generate steady profits in the long-term by ignoring the market and focusing on intrinsic value in the companies they invest in.

Benjamin Graham would easily be the most famous investor of the 20th century, if it weren’t for his student – Warren Buffett – likely the only person to surpass him in investing brilliance.

Coming from poverty he became an excellent student at Columbia and upon graduation started his investing career with a job on Wall Street. He wrote down his investing principles in 1949 inside The Intelligent Investor, which Warren Buffett calls the best book on investing ever written.

Here are 3 key lessons from Graham’s book, to help you start investing:

There are 3 principles to intelligent investing.

Never trust Mr. Market.

Stick to a strict formula, and you’ll do fine.

Ready to become an intelligent investor? Let’s get going!

Lesson 1: There are 3 principles to intelligent investing.

Often also called value investing, intelligent investing according to Benjamin Graham rests on 3 principles.

An intelligent investor always analyzes the long-term evolution and management principles of a company before investing.

An intelligent investor always protects him- or herself from losses by diversifying investments.

An intelligent investor never looks for crazy profits, but focuses on safe and steady returns.

A famous quote by Warren Buffet is about his 2 rules for investing.

Rule No. 1: Never lose money.

Rule No. 2: Never forget Rule No. 1.

That’s exactly what intelligent investing is. Nobody can predict the next Facebook, but everyone can protect themselves against losses.

By doing a thorough analysis, intelligent investors find stocks with a gap between their current price and the intrinsic value the company holds and will eventually unlock. This is based on the evidence collected from looking at the company’s history and their management values.

The intelligent investor invests in a few of those companies, in order to not lose everything when things go wrong and then sits back, being perfectly happy with collecting 10%, 12% or even 15% a year in returns.

Oh and she does one other thing.

Lesson 2: Never trust Mr. Market.

Graham’s most famous analogy is the one of Mr. Market, where he pictures the entire stock market as a single person.

If you imagine Mr. Market showing up on your doorstep every day, quoting you different prices for various stocks, what would you do?

According to Benjamin Graham, you’d be best off ignoring him altogether, day in and day out. Sometimes the prices he’d tell you would seem suspiciously cheap, sometimes astronomically high.

That’s because Mr. Market is not very clever, totally unpredictable and suffers from serious mood swings.

For example about a month before a new iPhone is released, stocks rally while people cue in line in front of the Apple store. But when the new phone is not exactly as expected, stocks can plummet the very next day.

As humans we’re so good at recognizing patterns, that we’re trying to find them even where none exist. That’s why we naturally a stock price that’s been going up for 10 days must go up further – which is of course not true.

If you want to be an intelligent investor, rely on your own research and ignore the market altogether.

Lesson 3: Always stick to a strict formula and you’ll do fine.

Lastly, to further remove you from the emotional stress of investing with the market, you should always stick to a strict formula when investing.

Graham calls it formula investing, but it’s more widely known as dollar cost averaging.

What it means is that you simply set a fixed budget you’re going to invest every month or quarter, and then invest that into the stocks you’ve previously picked – no matter the price.

For example, I invest 10% of my income every month. That money goes to my investment account on autopilot and then I invest it in the stocks I already own.

This is somewhat emotionally demanding, because it requires you to invest the same amount again and again – no more when stocks are cheaper, no less when stocks are expensive.

But once you get over it, it’s a great way to protect yourself against losses, which could happen if you invest a big sum right before a crash.

My personal take-aways

I could listen to Warren Buffett’s talks all day – the man is brilliant. He tells great stories about Graham, and it’s a wonderful way to learn more about this investing approach.

Value investing is very defensive, but if it’s worked for the richest man on earth, why not for you? It takes away the stress of day trading and is hassle-free, once you get into the right mindset.

This is a more advanced book than I Will Teach You To Be Rich, Rich Dad Poor Dad, or Money Master The Game, but the blinks make it really easy to understand. I have yet to read the book, but I’m already looking forward to reading The Intelligent Investor.

The Education Of A Value Investor is the story of how Guy Spier turned away from his greedy, morally corrupted investment banking environment and into a true value investor by modeling his work and life after Warren Buffett and his value investing approach.

Guy Spier isn’t your average guy (haha) – or would you have paid $650,100 for lunch? To be fair, it wasn’t just any lunch. It was lunch with Warren Buffett, and the proceeds of the event went to charity. Believe it or not, Guy gladly paid this price to talk to his idol. At the time, he might’ve needed that lunch more than you or I do.

He’d been working at an investment bank, and slowly come to grips with the fact that his environment was entirely toxic and slowly poisoning him. He hated the work environment, the shady practices, and found himself to be inauthentic, having traded some of his own ethics for profits.

The lunch was the cherry on top of his education as a true value investor – an approach that would finally move him away from all the negativity and let him go on to turn around his career and life.

Here are 3 of the lessons Guy learned from Warren Buffett about what really makes a great investor:

If a business forces you to throw your morals out the window, leave it.

Investing doesn’t stop at money, so invest in people too.

Financial crises are great opportunities for value investors.

Ready to be an ethical investor? Let’s go for it!

Lesson 1: If your work challenges your morals, it’s not worth it.

Investment banks are known for their ruthless salesmanship and dubious strategies to make money. They’re playing with other peoples’ money and assume zero risk in case of losing it, so they know they can be aggressive.

The company Guy worked at would always make their deals seem more profitable than they actually were to get investors on board. What would you do if you found out? Would you start asking questions? Or would you keep your head down?

Especially when you’re new, it’s easy to say you wouldn’t play along, but when actually faced with the dilemma, the decision gets a lot tougher.

Managers expect all of their employees to go with it, and if you’re the only one that hasn’t closed a deal, because all of your colleagues resort to sneaky tactics, would you just quit? Chances are, you’d feel immense pressure to perform and to prove to yourself that you can do it.

It’s very hard to even spot moral fraud when it’s happening, and even harder to point your finger and say: “No! To hell with this. Not under my watch!” But even if you’ve already fallen into this trap, don’t do it again. Come back out. Be honest. You know it’s the only way to do what’s right. No job in the world is worth sacrificing your morals, so if you’re in such a dilemma right now, take the leap. The world will be there to take care of you.

Lesson 2: Don’t stop at investing your money, invest your time too – in people!

Investing your money is one thing, but if you think of the people in your rolodex like a vampire thinks of his victims, there’ll soon be no money left to suck out, because people will ignore you.

A great investor doesn’t just invest her money, she also invests her time in the people that helped her get to where she is.

When Guy started becoming a value investor, he decided to write “Thank you!” cards to all the people that had helped him professionally in the past. A simple “Thank you!” goes a long way and over time, people started to respond and to invite him to events.

If you treat people well, if you show them gratitude, if you’re a good friend, if you care, give them respect, and are authentic, honest and helpful, they will remember your name and they’ll be there for you when you need help too.

Over time, this not only helps you in business, it also changes you personally. You’ll build up what Guy calls personal goodwill, a state of mind where you’ll care less about money and more about people.

Lesson 3: A true value investor loves a good financial crisis, because there’s always money to be made.

Value investing is, financially speaking, about buying great, valuable businesses at a discount and then keeping them forever and watching them grow. That means to a value investor, financial crises are awesome!

For one, because when they hit, he won’t take major losses, because he didn’t invest in risky stocks prior to the crisis, like Guy did in 2007-2008, when his portfolio lost only a little, compared to his colleagues.

Secondly, a crisis always causes a panic. People rush to their brokers and sell everything they’ve got, which means a lot of great businesses are on sale. Even great companies suffer from the financial fallout, which means you can swoop in and pick up their shares at a massive discount.

For example, when Volkswagen was caught cheating on the diesel emission tests in September 2015, their stock price dropped from over $160 per share to just over $100. That’s over 30%! But this crisis doesn’t make VW a bad company. Nor will it make them go bankrupt. So I got myself a bunch of shares at a huge discount. One year later they’re up 20%.

Don’t panic when everyone else does. Stay calm and there’s money waiting to be made.

My personal take-aways

Any example of someone in finance with a strong set of morals, ethics and honest values, is a good example. We need more of them. Seriously. If you’ve tried a lot of investment tactics or are working in finance, I highly recommend you read this.

The Barefoot Investor is an Australian farm boy’s no-BS guide to taking charge of your personal finances with a simple system focused on eliminating debt, living in the now, and still retiring in peace.

Every country has their own version of Dave Ramsey’s Total Money Makeover. Australia has Scott Pape, also known as The Barefoot Investor. He grew up on a farm, where he learned to love the simple life. In order to keep the freedom he’d always known, he started his career in the stock market, but quickly realized finance was more complicated than making a few good picks. So instead, he took to cleaning up the crooked industry that is personal finance.

Today he’s Australia most trusted finance expert, frequently speaks on national TV, has advised the government and world-class sports teams, and, once again, lives on a farm with his wife and kids. The Barefoot Investor is his comprehensive guide, which, since publication, has sold over 400,000 copies. In three parts, planting, growing, and harvesting, he shares nine steps you can take towards financial freedom.

Here are the 3 lessons I see as most important:

• Simplify your money management by using different bank accounts.
• Shred your credit cards first, then start paying off your debt.
• Automate some of your retirement planning with index funds.

Let’s see what practical steps you can take to improve your finances…today!

If you want to save this summary for later, download the free PDF and read it whenever you want.

Lesson 1: Manage your money with multiple bank accounts.

In most couples, the men love to deal with the family’s finances. Moving money around feels powerful, no matter how little you’re shoveling from left to right and back. Whether traditional gender roles apply or not, your partner may not love spreadsheets, budgeting and investing as much as you do, or vice versa.

However, one of the first things Scott realized about personal finance is that it’s important to have both parents involved. This, in turn, requires a system that is simple enough to understand and explain in a few minutes. That’s why Scott came up with the serviette strategy. It’s a 3-bucket structure to manage all incoming money and it fits on a single napkin.

The 3 tiers are:

Blow. This is the bucket for all your everyday expenses, a bit of splurging, and some emergency money.

Mojo. A place for long-term savings in case of a bigger financial rough patch. Should ideally be 3 months of expenses.

Grow. Where your retirement and wealth investments go.

You can set up the entire system with five bank accounts:

Daily. 60% of your income goes here to cover rent, food, mortgage, etc.

Splurge. 10% is for short-term fun treats, like going to the movies or a new handbag.

Smile. 10% for long-term rewards, like a vacation.

Fire Extinguisher. 20% used to stuff burning holes in your pocket, like credit card debt.

Mojo. An account with a separate bank, where all extra cash goes, for example from overtime hours or a garage sale.

The big trick is directing your money where it’s supposed to go before it gets there. With this system, you can manage your finances in less than an hour per month, even if you don’t like dealing with it.

Lesson 2: Start eliminating your debt by cutting up your credit cards.

Once you’ve set up your buckets, Scott has an interesting take on how you can instantly build momentum: Take a pair of scissors and cut all your credit cards into tiny pieces. Paying off your credit card debt first is a common strategy. It’s usually small enough to be manageable, but big enough to make you feel you’ve accomplished something meaningful.

However, by destroying your credit cards first, you eliminate the possibility of racking up more debt with them while you’re trying to catch up. Once you’ve burned those bridges, it’s time to get cracking.

Call your bank and tell them about an 18-month zero interest offer from [insert competitor bank.] You might not have that, but you don’t need to. As long as it gets them to reduce your interest and fees on your current credit card debt, that’s fine. With the best conditions set, you can start using the money from your fire extinguisher account to slowly pay down your debt and get the ball rolling.

Lesson 3: Use index funds for long-term, automated growth.

Living debt-free is one thing, but actively growing your money is another. And that’s the thing. To most people, the ‘active’ part seems risky and daunting. Hence, Scott recommends dipping your toe into the water with an approach to investing we’ve discussed on Four Minute Books before: index funds. First commercialized by Jack Bogle in the 70s, these nifty investment vehicles simply track and trace the biggest, most common stocks in a given industry or geographic region.

For example, the Vanguard Total World Stock Index Fund models a basket of over 8,000 stocks worldwide, thus echoing annual global stock market returns at just 0.19% in fees. After all, once the stocks are selected for the year, there’s not much to update! Since the fund manager doesn’t buy and sell stocks all the time, you don’t pay them a premium.

Not even Warren Buffett beats the stock market as a whole, so as a first source of long-term, automated growth, index funds are your best choice. And Vanguard offers a whole variety of them. Just pick one and get started.

My personal take-aways

Different people need different books at different times. Maybe you have your own financial system already. Or no debt left. But wherever you are in your journey, reading a new finance book once or twice a year will usually make you rethink your strategy. That in itself has value. And maybe The Barefoot Investor will do exactly that for you in 2018.