personal finance books

A look at great reads from the editor of the TLS. This week: an economist takes issue with Niall Ferguson’s life of banking legend Warburg, the myths of Charles de Gaulle explored, and does Cardinal Newman deserve to be sainted?

To be thought a good man, it is always useful to cultivate a good myth. The TLS this week looks at mythmakers from the City of London to the Vatican and from General de Gaulle to Napoleon.

High Financier: The Lives and Time of Siegmund Warburg By Niall Ferguson 576 pages. The Penguin Press. $35.
Highest Finance

How good a man, for example, was the mid-20th-century London banker Sir Siegmund Warburg, the subject of Niall Ferguson’s much-praised new biography? Tim Congdon takes issue with the virtuous reputation of a man who he sees as being “lionized” by his biographer in an attempt to highlight Warburg's ethical superiority to the City slickers and shysters of today. Congdon, a longtime monetary economist and adviser to Conservative governments, is unconvinced by the noble case, judging Ferguson naïve about the low tricks that have ever been at the heart of high finance, and too keen “to see in them a public benefit that is not and never was there.” This argument may run and run.

The General: Charles De Gaulle and the France He Saved By Jonathan Fenby 720 pages. Simon & Schuster. £30.
The Myths of Charles de Gaulle

Richard Vinen is intrigued by two new books on General de Gaulle and, in particular, the light they shed on the differing reputations of Churchill and Napoleon, too. De Gaulle, he points out, had to achieve his personal mythology before he achieved any of his own victories; Napoleon needed mythmaking when his victories were long behind him. Churchill’s memoirs are treated in Britain as a source of facts and are found wanting by historians as a result; de Gaulle’s are published in France alongside Gide and Proust as “a kind of fiction” and are venerated accordingly. The books under review are Jonathan Fenby's The General and Sudhir Hazareesingh's Le Mythe Gaullien.

Newman’s Unquiet Grave: The Reluctant Saint By John Cornwell 256 pages. Continuum. £18.99.
Saint Cardinal Newman?

As British Catholics await the pope’s visit in September, during which he will beatify the influential English cardinal, John Henry Newman, there is much discussion of whether the virtues displayed by the author of Apologia Pro Vita Sua will in time boost his own mythology still further? Is a formal declaration of sainthood the imminent next step. Anthony Kenny, reviewing a biography subtitled The Reluctant Saint, praises Newman’s prose style and intellectual power, while dismissing briskly as “absurd” the notion, popularized in the media, that he was ever homosexually active. Bernard Manzo examines the paradox of Newman as the literary man who instinctively preferred reading and writing tales of dreams to becoming a part of one himself. Newman considered Scripture to be a “record of an idea that lived in its fullness in the minds of the Apostles.” The letters of St. Paul were “literature in a real and true sense,” comparable in the cardinal’s mind to great Greek plays and the most powerful political speeches.

Plus: Check out Book Beast, for more news on hot titles and authors and excerpts from the latest books.

Peter Stothard's latest book is On the Spartacus Road: A Spectacular Journey Through Ancient Italy. He is also the author of Thirty Days, a Downing Street diary of his time with British Prime Minister Tony Blair during the Iraq war.

Get a head start with the Morning Scoop email. It's your Cheat Sheet with must reads from across the Web. Get it. For more books coverage follow Book Beast on Twitter.

For inquiries, please contact The Daily Beast at editorial@thedailybeast.com.

One pill makes you larger and one pill makes you small. /

And the one that mother give you, don't do anything at all. ~ Jefferson Airplane

I was talking to a person in the medical profession who said, "some patients are looking for a magic pill that will solve all their problems."

I said welcome to my business. The same analogy holds true in personal finance. People want one simple idea that will make them rich -- preferably while they are lying on the couch watching television.

I've tried losing weight while lying on the couch, munching on potato chips. I can tell you that it doesn't work.

If you read The Millionaire Next Door or any book that studies how people become financially independent, they all basically say the same thing. Spend less than you make. Don't get into needless debt. Make a budget. Have a long term goal and be prepared to take years to get there.

The same thing holds true in living a healthy life. Eat less than you burn up. Count your calories or measure your progress. Plan to live to an old age and stay healthy until you get there.

The key on both health and money is focusing on the long run. There is not a "magic pill."

The reason that Wall Street collapsed is that too many companies were looking for their own "magic pill." They were focused on piling up short term profits, so they could get their multi-million dollar bonuses and didn't care about the long term.

Turns out that Wall Street had a magic pill. It was called the bailout. Thanks to their friends and lobbyists in Washington, Wall Street was able to screw up and have someone else clean up the mess.

It doesn't work that way for the rest of us. With your health, to coin an old song, "if you play around you lose your life." Same thing holds true with your money. Too many people are dying old and broke because they don't have a long term plan.

All this takes me to the "Move Your Money" movement.

I've been pushing it hard and you can read more about it at http://moveyourmoney.info/

The concept is simple. Move your money from a "too big to fail" bank and deposit it in a bank or credit union in your community.

Then get the charities you support to do the same. Then get the college you graduated from to do the same.

Then get your neighbors and your friends.

Right now, the top six "too big to fail" banks control about 70% of the wealth in America. That is WAY out of whack.

They got the "financial reform" bill watered down. The next time they get in trouble, they will just call their buddies in Washington and get another bailout. Unless we dilute their strength.

If more of our money is in local banks and credit unions, the Wall Street banks won't have the same power in Washington. They might not get another bailout. Better yet, Congress might get the backbone to actually regulate Wall Street so that they don't really need a bailout again.

I wasn't for the first bailout. I'm certainly not going to be for another one. Like all good things in life, Move Your Money is not a "magic pill." But it may be the start of getting us to a healthy future.

Don McNay, CLU, ChFC, MSFS, CSSC of Richmond Kentucky is an award-winning financial columnist and Huffington Post Contributor.



You can read more about Don at www.donmcnay.com



McNay founded McNay Settlement Group, a structured settlement and financial consulting firm, in 1983, and Kentucky Guardianship Administrators LLC in 2000. You can read more about both at www.mcnay.com



McNay has Master's Degrees from Vanderbilt and the American College and is in the Hall of Distinguished Alumni of Eastern Kentucky University.



McNay has written two books. Most recent is Son of a Son of a Gambler: Winners, Losers and What to Do When You Win The Lottery



McNay is a lifetime member of the Million Dollar Round Table and has four professional designations in the financial services field.

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Add Barriers to Your Savings Account to Protect Yourself from Impulsive Spending

There's nothing wrong with dipping into your savings account when you need to, but if you're prone to doing it a bit too often, using certain kinds of accounts can help deter you from going to them more than necessary.

Photo by Jeff Belmonte.

You can never understate the importance of budgeting, but it can be difficult when you have just one giant pile of money stashed away in a savings account. Personal finance blog Wise Bread recommends a few different types of accounts to deter you:

For short-term, emergency-fund type savings, I recommend a high-yield online savings account. It should be one that's not directly attached to your checking account, a debit card, or an ATM. That way you can't get to the money easily.

And because transfers to and from online savings accounts typically take a few days, you'll be less likely to reach into those funds for a splurge. I've found that the three to five day window really helps me to stay away from those funds. Yet, the savings account is still flexible enough to help you if you lost your job, or had a medical emergency that would require the use of the funds.

Using a high-yield savings account is good for short-term savings, since it merely makes it more difficult to get your money. For longer-term savings, however, they recommend more aggressive barriers, like a retirement account that deducts tax savings if you draw from it before retiring. These barriers may not be necessary for everyone, but if you find that impulsiveness is more a danger to your savings than anything else, it's a good way to keep yourself on track. Hit the link to read more, and share your strategies in the comments.

J.D.’s equation is correct, but it’s only part of the story. cash flow is in fact income minus expenses like the article states. However, cash flow does not correlate directly to wealth. You would naively think that wealth is the integral of cash flow with respect to time. It isn’t.

Suppose you earn $50,000. You immediately spend this money on building supplies and build a house with it. Your net cash flow is $0, but you now have a house that’s worth more than what you paid for it. You’ve got a property with a value of, say, $60,000. This is investment. Certainly you needed some cash flow to start the investing process, but cash flow itself is not wealth. Also, you now have the ability to generate $60,000 new dollars in positive cash flow by selling the house you built, in which case you can invest in something new.

The average American household income is about $3,000/month, after taxes. If you spend *all* of that on living expenses, you will never save your $50,000 to build your house. If you manage to cut your living expenses by half, you can now save your $50k in about three years. However, if instead you were able to double your income, you could save your $50k in half that time. If you take this even further and double your income again (to $12k/month) you could save you $50k in only 6 months. However, if instead you cut your living expenses by half a second time (to $750/month) it would still take you 22 months to save $50k.

You quickly hit a point of diminishing returns with cutting expenses, where each additional percent cut from your budget buys you less and less. The opposite is true for increasing your income. There is absolutely no way to save $50k in less than 16 months on $3,000/month. However, if you’re making enough money, there’s no limit to how fast you can do it.

Here’s one more example that’s not so extreme:

Set a goal to save $250,000. Pretend you want to buy a house in cash.

Start off with the same $3,000/month salary.

Start with the same $3,000/month living expenses.

Scenario 1: Your living expenses never change, but each year, you manage to increase your income 7% over the previous year. This seems feasible, it’s not a “get rich quick” scheme, you can probably find some way to improve your performance in whatever business you’re in by about this much.

You save your $250,000 in a bit over 12 years. At the end of the 12 years, you make about $120k/year. This is definitely a good salary, but it’s not ridiculously, infeasibly high.

Scenario 2:

You keep the same salary every year, but cut your expenses by 7%.

You save your $250k in 17 years, which is significantly longer. You’re also living on $920/month at the end of this, which is probably infeasible in real life. You just can’t keep cutting and cutting and cutting to this degree.

Scenario 3:

You combine both 1 and 2, both increasing your income by 7% every year, and cutting expenses the same amount. You’d think this would make a huge difference, right?

You’ll save your $250k in 10 years. This is definitely an improvement over either one of the other scenarios, but it’s not nearly the same sort of improvement you see if you solely increase income instead of solely decreasing spending. It also requires you to live on $1500/month at the end, which is certainly a lot more feasible that $920, but you still may think that’s a bit low.

This whole calculation ignores inflation (meaning, your 7% raise per year is probably more like 10% in absolute terms). It also means that at the end, when I say you’re living on $920/month, that’s $920 dollars at 2010 value, not 2027 value.

This is essentially the same concept that J.D. likes to call ‘the power of compound interest’, except applied in a slightly different way.

One other note on this example: selling your ’stuff’ makes almost no difference here. Even assuming you had $10k worth of stuff to get rid of at the beginning of this, it only buys you a few extra months in any of these scenarios. This is because a single, one-time influx of $10k is small in a scenario that takes 10-17 years to play out. At the end of these scenarios, you’re saving in the ballpark of $2000-$5000 every month. The extra $10k just isn’t that big of a deal any more. Selling ’stuff’ can help you reduce debts and stop paying interest to other parties if you can do it all at once, but it really doesn’t help you build long-term savings very well.

I know the site is called “get rich slowly”, but I like to think that is meant to convey an idea of perseverance and the fact that “get rick quick” schemes don’t work. It’s not meant to imply you should go artificially slower than you have to, just because.

In short: ask for a raise every year, even if you don’t always get it. Don’t be afraid to take a job at a competing company if they’ll offer you a better salary (assuming the job is otherwise similar). You don’t need to start your own company to make a few more percent every year. Just be valuable in your industry, show that to your employers, and don’t be afraid to ask for raises.

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Add Barriers to Your Savings Account to Protect Yourself from Impulsive Spending

There's nothing wrong with dipping into your savings account when you need to, but if you're prone to doing it a bit too often, using certain kinds of accounts can help deter you from going to them more than necessary.

Photo by Jeff Belmonte.

You can never understate the importance of budgeting, but it can be difficult when you have just one giant pile of money stashed away in a savings account. Personal finance blog Wise Bread recommends a few different types of accounts to deter you:

For short-term, emergency-fund type savings, I recommend a high-yield online savings account. It should be one that's not directly attached to your checking account, a debit card, or an ATM. That way you can't get to the money easily.

And because transfers to and from online savings accounts typically take a few days, you'll be less likely to reach into those funds for a splurge. I've found that the three to five day window really helps me to stay away from those funds. Yet, the savings account is still flexible enough to help you if you lost your job, or had a medical emergency that would require the use of the funds.

Using a high-yield savings account is good for short-term savings, since it merely makes it more difficult to get your money. For longer-term savings, however, they recommend more aggressive barriers, like a retirement account that deducts tax savings if you draw from it before retiring. These barriers may not be necessary for everyone, but if you find that impulsiveness is more a danger to your savings than anything else, it's a good way to keep yourself on track. Hit the link to read more, and share your strategies in the comments.

J.D.’s equation is correct, but it’s only part of the story. cash flow is in fact income minus expenses like the article states. However, cash flow does not correlate directly to wealth. You would naively think that wealth is the integral of cash flow with respect to time. It isn’t.

Suppose you earn $50,000. You immediately spend this money on building supplies and build a house with it. Your net cash flow is $0, but you now have a house that’s worth more than what you paid for it. You’ve got a property with a value of, say, $60,000. This is investment. Certainly you needed some cash flow to start the investing process, but cash flow itself is not wealth. Also, you now have the ability to generate $60,000 new dollars in positive cash flow by selling the house you built, in which case you can invest in something new.

The average American household income is about $3,000/month, after taxes. If you spend *all* of that on living expenses, you will never save your $50,000 to build your house. If you manage to cut your living expenses by half, you can now save your $50k in about three years. However, if instead you were able to double your income, you could save your $50k in half that time. If you take this even further and double your income again (to $12k/month) you could save you $50k in only 6 months. However, if instead you cut your living expenses by half a second time (to $750/month) it would still take you 22 months to save $50k.

You quickly hit a point of diminishing returns with cutting expenses, where each additional percent cut from your budget buys you less and less. The opposite is true for increasing your income. There is absolutely no way to save $50k in less than 16 months on $3,000/month. However, if you’re making enough money, there’s no limit to how fast you can do it.

Here’s one more example that’s not so extreme:

Set a goal to save $250,000. Pretend you want to buy a house in cash.

Start off with the same $3,000/month salary.

Start with the same $3,000/month living expenses.

Scenario 1: Your living expenses never change, but each year, you manage to increase your income 7% over the previous year. This seems feasible, it’s not a “get rich quick” scheme, you can probably find some way to improve your performance in whatever business you’re in by about this much.

You save your $250,000 in a bit over 12 years. At the end of the 12 years, you make about $120k/year. This is definitely a good salary, but it’s not ridiculously, infeasibly high.

Scenario 2:

You keep the same salary every year, but cut your expenses by 7%.

You save your $250k in 17 years, which is significantly longer. You’re also living on $920/month at the end of this, which is probably infeasible in real life. You just can’t keep cutting and cutting and cutting to this degree.

Scenario 3:

You combine both 1 and 2, both increasing your income by 7% every year, and cutting expenses the same amount. You’d think this would make a huge difference, right?

You’ll save your $250k in 10 years. This is definitely an improvement over either one of the other scenarios, but it’s not nearly the same sort of improvement you see if you solely increase income instead of solely decreasing spending. It also requires you to live on $1500/month at the end, which is certainly a lot more feasible that $920, but you still may think that’s a bit low.

This whole calculation ignores inflation (meaning, your 7% raise per year is probably more like 10% in absolute terms). It also means that at the end, when I say you’re living on $920/month, that’s $920 dollars at 2010 value, not 2027 value.

This is essentially the same concept that J.D. likes to call ‘the power of compound interest’, except applied in a slightly different way.

One other note on this example: selling your ’stuff’ makes almost no difference here. Even assuming you had $10k worth of stuff to get rid of at the beginning of this, it only buys you a few extra months in any of these scenarios. This is because a single, one-time influx of $10k is small in a scenario that takes 10-17 years to play out. At the end of these scenarios, you’re saving in the ballpark of $2000-$5000 every month. The extra $10k just isn’t that big of a deal any more. Selling ’stuff’ can help you reduce debts and stop paying interest to other parties if you can do it all at once, but it really doesn’t help you build long-term savings very well.

I know the site is called “get rich slowly”, but I like to think that is meant to convey an idea of perseverance and the fact that “get rick quick” schemes don’t work. It’s not meant to imply you should go artificially slower than you have to, just because.

In short: ask for a raise every year, even if you don’t always get it. Don’t be afraid to take a job at a competing company if they’ll offer you a better salary (assuming the job is otherwise similar). You don’t need to start your own company to make a few more percent every year. Just be valuable in your industry, show that to your employers, and don’t be afraid to ask for raises.

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In 2006, recent Harvard grad Alexa von Tobel was headed for a job at Morgan Stanley. But though she would soon be managing the bank’s investments, she realized she didn’t know the first thing about her own finances. Most financial guides seemed to be written for middle-aged readers with millions in assets, rather than recent college grads. "I was reading every book I could find, but none of them spoke to me," she says. So she came up with the idea for LearnVest, an online personal-finance resource for young women like her, and ended up writing an 80-page business plan.

After two years at Morgan Stanley, von Tobel entered Harvard Business School in 2008. But upon winning a business plan competition held by Astia, a non-profit that supports women entrepreneurs, she took a five-year leave of absence and invested $75,000 of her Wall Street earnings to start LearnVest in November. She quickly enlisted advisors, including Betsy Morgan, the former CEO of the Huffington Post, and Catherine Levene, the former COO of DailyCandy, to help develop the site’s content and technology. In January 2009, she secured $1.1 million in seed funding from executives at Goldman Sachs.

LearnVest’s site launched a year later and has since signed up more than 100,000 members. It offers online budgeting calculators, video chats with certified financial planners on the company’s staff, and free e-mail tutorials on topics such as opening an IRA. The company earns revenue from advertising and by referring its users to companies such as TD Ameritrade. In April, after just four weeks of fundraising, von Tobel closed a $4.5 million investment round led by Accel Partners, which has also invested in Facebook and Etsy. (Incidentally, Facebook CEO Mark Zuckerberg lived in the same dorm as von Tobel at Harvard.)

Von Tobel likens LearnVest to an online version of The Suze Orman Show, but with the goal of reinforcing positive finance habits early on. “Suze Orman helps 45-year-old women get out of debt,” she says. “Why not reach 20-year-olds to keep them from getting into debt?”

As you’ll read tomorrow (or Monday), I’ve entered a new phase in my life. After years of hard work and long hours building this blog (time that I’ve enjoyed), I’ve been shifting things around so that I have more free time. As a result, I’m going to have more time to devote to creating quality blog posts, instead of rushing around at the last minute looking for something to write about.

Because of this, it’s time yet again to take requests. I do this about once a year, and it’s a great way to get a feel for what GRS readers are interested in. I’d be grateful if you’d take the time to leave a comment below with topic suggestions or article requests. It doesn’t matter if we’ve covered the subject in the past. If you’d like me (or one of the other GRS staff) to write about it, let me know.

Have there been too many articles about credit cards? Too few articles about credit cards? Would you like to know more about individual savings accounts? Do you like the articles about the psychology of spending? Would it be helpful to have somebody come in to explain insurance concepts in plain English? Should I try to persuade my wife to share more of her recipes now and then? Let me know what you’d like to read about!

While you’re all providing feedback about the site, here are a few recent articles of note:

Over at The Simple Dollar, Trent and his readers had a thoughtful discussion about the obligations of wealth. “I think there is some inherent distrust of the rich in the mainstream of American society,” Trent writes as he describes how a wealthy person can keep from alienating his friends. There’s so much to say about this topic; I’m tempted to write an entire article about it.

GRS reader Steven writes a blog called Hundred Goals, which is about achieving your goals while managing your finances. After Sierra’s post this morning about travel, he dropped me a line to let me know that he has a recent article about how to have a great vacation.

Speaking of vacation, my pal Jason over at No Credit Needed spent time compiling day-use fees and free days for state parks across the United States. Handy page to bookmark!

And here’s more travel! At The Art of Non-Conformity, my good friend Chris Guillebeau has posted a beginner’s guide to travel hacking. I’ve been asking him to share this info for a long time; now I’ve got to take responsibility to use the knowledge he’s shared.

Finally, I’ve been giving a lot of interviews lately. I’m much more comfortable with these than I used to be. (They used to scare me to death!) Some examples:

• Colleen from The Frisky interviewed me about how to save money even when you’re living paycheck to paycheck. This is a tough quandary, something I’m asked about a lot.




• In an interview with BeFrugal, I discuss frugality, happiness, and conscious spending. (Note: “the ballot” should be “the balance” — I must have mumbled.)




• Jeff Rose at Good Financial Cents also interviewed me. This interview is very much about the process of writing a book, which may or may not interest you.




• I also spoke with Beverly Harzog from Card Ratings. We chatted about credit cards, of course, but also about other aspects of personal finance.




• Finally, USA Weekend has a short piece on how to give your 401(k) a midyear check, for which author Richard Eisenberg interviewed me back in May. This is a perfect example of how much work goes into even a small newspaper article. Eisenberg spent 20-30 minutes on the phone with me, and I’m sure he did the same with the other folks he quotes. Plus, I’ll bet he spent a lot of time writing. I wouldn’t be surprised if there were 4-6 hours in this small piece.

Okay, one last thing before I go. Tim pointed me to a two-year-old New York Times series about the debt trap, which includes an interactive infographic showing average household debt loads over the past century.

That’s enough links for today. Please do leave a comment with topic requests or other feedback. Meanwhile, it’s time for me to go do some yardwork…

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