The Wealthy Barber – When Your Most Influential Books Let You Down

A few weeks back I wrote about the four books that changed my financial life – one of those was the Wealthy Barber. I apparently wasn’t the only one who liked this book. It has over 2 million copies sold according to the cover. I originally read it as a teenager at the library, and it was one of the first (and possibly the first) book on finances that I read. It had a big impact on me and the way that I viewed saving and investing. So this past Christmas I put the book on my wishlist and happily received it as a gift.

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I re-read the book over the holiday week. Fortunately it’s a very easy read, just like I remember. It’s the story of a young man, Dave, who’s wife, Sue, is about to have a baby. They’re also about to buy a house. Given everything going on in his life, he goes to his father to ask how to manage his family’s finances. Surprisingly, his father directs him to the real financial expert in his hometown-Roy, the local barber, who has achieved wealth by using some basic principles and is eager to share them.

On Amazon this edition is touted as the “updated 3rd edition”, but in reading it I could tell it hasn’t been updated in quite a while. The first sign was the fact that it was updated to “include the Taxpayer Relief Act of 1997”-twenty years ago.  Once I hit the IRA contribution limit section, where it was written as $2,000 per year (it’s now $5,500) I could tell it’s been a while.

What did I like about this book, and why was it so influential? Well it’s not written like a typical personal finance book. It’s written as a story, with a plot, and the financial lessons are taught through a conversation with the characters. The basic idea-that anyone could become wealthy if they followed some simple principles-really resonated with me as a teenager. It was also a good basic introduction to investing, retirement plan types, and buying a home. Those basic lessons set the foundation to my 20 years of pursuing financial independence.

When a Financial Book Gets Dated

So if it was so important, why did I title this post “when your most influential books let you down”? The fact that it hasn’t been updated in years is part of it. I think the story is still fun to read, and a good introduction to some basic financial concepts. But the financial specifics are years out of date. Not only are all the contribution limits incorrect, but the book also uses examples with 15% returns (!!!) to illustrate the power of compound interest. Since this was originally written and published during a huge stock run up, that’s somewhat understandable, but most financial books use 8 or 10 percent as a more realistic long-term rate of return.  It also discusses paying down your 6% mortgage and saving to buy a CD player. So I think the book could do with a little tune-up on the specifics.

But I do think the basic lessons imparted by the wealthy barber still hold true:

• Invest 10% for long-term wealth
• Make sure you have a will so your money goes where you want it to when you pass away-not where your state says it should
• Learn about the different types of life insurance, what kind you need (term), and when you need it (when you have dependents)
• Invest for retirement outside your 10% fund, even if you have a pension
• Analyze whether buying a home or renting makes sense for you. Owning a home can be one of the best kinds of “forced savings” for the average person, but it’s not right for everyone in every market. And remember that real estate can decrease in value
• Detailed budgeting isn’t needed if you pay yourself first, but it can certainly help
• The best, first investment is paying off non-deductible debt (car loans, credit cards, personal loans). After that, paying off deductible debt (student loans, mortgage) can be beneficial depending on the specifics
• A dollar saved is two dollars earned (thanks to taxes). Learn about the tax code and the deductions you can take
• The “miscellaneous” chapter talks about emergency funds (although the amount suggested of $2-$3 thousand would be a bit low nowadays), saving for college (which is way out of date), and the importance of health & disability insurance (spoiler alert-get them)

All in all, this is still an enjoyable read. It brought back memories of the first time I read this book, and I enjoyed watching Dave and his friends again get schooled by the wealthy barber. If a more updated version of the book came out, I’d highly recommend picking it up. But generally, make sure that the books (or blog posts!) you’re reading for financial information are recent. Otherwise the information inside is likely out of date.

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