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Everything You Need to Know About Your Finances and Your Future
By Jean Chatzky
If you're looking for a highly readable, yet relatively complete, book about personal finance, look no further than Talking Money: Everything You Need to Know About Your Finances and Your Future by Jean Chatzky. Chatzky, a columnist for Money Magazine, provides solid financial advice.
According to Chatzky, learning to talk about money is comparable to learning a foreign language, which seems a bit of a stretch. Learning to talk money is much easier! Chatzky says that while sex is a relatively comfortable topic for casual conversation, that talking money is taboo (What crowd's she hanging out with?). As you learn to talk about money, Chatzky says you'll make more intelligent personal financial decisions.
The first chapter of Talking Money discusses personal financial goals. Chatzky poses five questions to ask yourself about your personal financial goals. First, what do you want to achieve this year with your personal finances? Second, what do you want your money to achieve for you in ten years? Third, what do you want to accomplish with your money far into the future? Fourth, are you willing to begin achieving your financial plans? Fifth, do you know enough to get started with your financial dreams?
Chatzky says your financial goals will constantly change. Chatzky writes: "Life is a moving target. You plan on spending $2,000 to repair the kitchen in your new home, when all of a sudden the roof goes, too." Chatzky says that most people fail to set measurable financial goals. Yet, she notes, setting measurable goals works.
Chatzky compares setting financial goals to exercise. She says that attending a full class in cardio kickboxing will tire you out the first day, but if you keep at it, you will get stronger. Similarly, getting started tracking your expenses or saving might at first seem tiring. But, as you learn to do it, you will become financially stronger.
The chapter Talking Debt does an excellent job of discussing the need to pay down excessive consumer debt. It's difficult to save if you're paying 18% on a large credit card balance. That interest puts a serious drain on your income, leaving less to save.
Among her list of ideas to relieve debt, Chatzky recommends: "Raid your savings account. Do you have hundreds of dollars sitting in the bank earning 3 percent? Or thousands in a money market account earning a little more? Take the money out and use it to pay off your credit cards. You'll save considerable money. Say you take $3,000 out of a 3 percent savings account and use it to pay off debt on a credit card where the interest rate is 18 percent. In a year, you'll net $450 on the deal. That's a substantial start to your new emergency fund."
Talking Money gives solid advice about choosing the right credit card for you. And, Chatzky provides good questions to ask about any credit card you consider acquiring. She also discusses credit ratings. Talking Money also notes that anyone who claims to be able to improve your credit rating probably isn't legitimate.
The second chapter, Talking Savings, was highly readable. Chatzky says we probably want to know where our money goes. So, she recommends personal financial programs, such as Quicken or Microsoft Money, for tracking your finances. She notes that some people become highly addicted to tracking their expenses to the penny using such computer programs. They join the "Cult of Quicken."
If you don't want to use a computer to track your expenses, Chatzky gives a short list of personal expense categories that will probably suffice for basic budgeting.
The chapter Talking Investing for Safety does a solid job of introducing money market accounts, treasuries, money market mutual funds, short-term bond funds, and tax-free funds.
Chatzky tells us that Treasury Bills are 3-12 months in maturity, Treasury Notes are 2-10 years in maturity, and Treasury Bonds are up to 30 years in maturity (I'd just lump them all together and call them Treasuries, but then too, my French sucks). Chatzky suggests that if you plan to buy Treasuries and hold them until maturity, you should buy them directly from the government (publicdebt.treas.gov) to avoid paying commissions.
Talking Money points out that the difference in yield between various money market mutual funds is due to the differing expense ratios that the funds charge investors. Chatzky mentions ibcdata.com as one source to track money market fund rates. Chatzky also makes the important distinction between money market funds which have only temporarily lowered their expense fees to draw in business and money market funds (such as Vanguard) which tend to keep expense ratios low on a consistent basis. (Chatzky also notes that credit card companies are notorious for offering teaser rates which shoot up.)
The book does a very good job of explaining why we shouldn't invest in stocks for short-term savings goals. She also briefly discusses tax-free bonds versus taxable bonds, but her explanation of converting tax free bonds to "taxable equivalent" bonds is confusing.
She writes: "Compare the returns from taxable and tax free money market funds and you'll see that the latter return less. That doesn't mean they're less valuable for you, however. The fact that you pay no federal taxes on these funds (and sometimes no state taxes as well) ups your take. But by how much? In order to answer that question you need to do some quick division. To get to the comparable yield (called the "taxable equivalent yield"), take the tax free yield of the investment and divide it by 100 minus your tax bracket (if you're in the 28 percent bracket, the divisor would be 72, if you're in the 36 percent bracket it would be 64, and so on.)"
Suppose a tax-free money market fund yields 4% and you are in the 28% tax bracket, to find the taxable equivalent yield, you would divide 4% by 0.72 not 72. This gives a taxable equivalent yield of 5.56%. So, we should add a line saying, "Divide the number by 100 before dividing it into the tax-free interest rate."
My favorite chapter was Talking Spending where Chatzky gives great tips for saving money on your purchases. She notes we must be informed consumers. For example, when buying a car, it's best to know the dealer price. Then, we can work from that and see how much mark-up the dealer is trying to get. Chatzky suggests edmunds.com as one source of dealer prices on cars.
Also, when ordering mail-order or over the internet, Chatzky says don't forget shipping charges. I wish I had given this some thought before I ordered my 17" PC monitor from across the country! I would have saved $40 by buying one locally. That's money effectively thrown away.
Chatzky tells us that buying a used car is often the best deal when purchasing an automobile. She tells us two-year-old cars have depreciated in price by about 60%, yet, typically, a two-year-old car has only expended one-third of its useful life.
Other chapters discuss talking real estate, talking insurance, talking investing for retirement and college, talking with your aging parents about money, and talking with your spouse about money. Overall, Talking Money: Everything You Need to Know About Your Finances and Your Future by Jean Chatzky is very readable and provides good financial advice.
Everything You Need to Know About Your Finances and Your Future