Why would I pick up a copy of Personal Finance for Dummies? After all, the sound of the word "dummy" reminded me of a wooden-headed creature with a ventriloquist’s voice and that could not be me. As I started reading the introduction, the very first line made me feel much better: “If your personal financial knowledge is limited, you’re probably not at fault.” In my case, that was an accurate statement until I read Personal Finance for Dummies.
First off, the book is written in language any layman can understand. It is not necessary to read every word of every chapter, yet I would advise at least skimming the headings on each page. As a whole, the book shows a reader the effect sound financial planning can have on a lifetime. It shows the importance of diagnosing monetary fitness and then exercising sound financial health practices at a very early age.
One of the most important pieces of advice author Tyson gives is this: Get out the scissors and cut up your credit cards (not debit cards). In an era where overspending with plastic has helped bring the collapse of world markets, it is critical to plan how you will save money for your future – but you must do it now! This is especially important if you tend to be obsessive about using plastic instead of real money.
Saving usually means cutting what you spend. The author suggests not buying costly brand names when others are of equal quality. When possible, buying in bulk at wholesale superstores is a real cost saver unless you’re buying perishables. Then it’s important to use all the items before they turn bad or before their expiration date. When eating outside the home, he suggests ordering vegetarian dishes, and avoiding beverages, especially alcohol.
I’m not saying that you should live on bread and water. You can have desert … have some wine, too, for special occasions … not with every meal. Try eating appetizers and dessert at home…
Tyson explains the difference between bad debt and good debt. You incur bad debt when you borrow money or use credit cards to buy items for which you don’t have immediate cash. To pay for a much needed vacation, he’d suggest you first save enough money for the vacation, then actually take it. If you need a new automobile, avoid taking out a loan. Instead, consider buying a used car rather than a spanking new one which loses a high percentage of its value the instant you start the motor and drive it out of the dealership.
On the other hand, you acquire good debt when you spend money for education, or for a house, or for starting your own small business. In these instances, what you spend is not consumed without a return. Education can buy you a better job; a home will build up equity with time; a small business can grow you more take home profit than working for someone in another business at a fixed wage. Tyson explains that people often overlook their own talents and skills which they could effectively exploit in starting a small business.
When you must borrow, Personal Finance for Dummies suggests you investigate borrowing against the cash value of life insurance policies; cashing in stock shares or treasury bonds; borrowing against the equity in your home; borrowing against your employer’s retirement account balance. He even suggests borrowing from friends or family. In all probability you'll get the fairest interest rate possible.
Personal Finance for Dummies stresses the importance of investing money wisely in mutual funds. The author favors a portfolio of both mutual funds and bond funds because of the low risk involved. Over a period of time, several or many years perhaps, this type portfolio can increase your wealth without as much risk as outright purchases of company stock. In a time like the present where so many companies, and yes, even financial investment houses have gone bankrupt, stock in many of these companies is now worthless.
It is critical, however, to hire a financial manager to help you make good choices with investments. This manager will charge a fee, of course, but should help you invest in companies where there is no charge (no-load) for the mutual fund shares you buy. It is critical that you to do your homework in finding this manager. Otherwise, you could be paying a clever salesman who will advise you to purchase funds from which he or she makes a profit not only for selling them to you, but also makes a profit each time you buy or sell within that fund.
When suggesting investing firms, author Tyson claims “Vanguard … is a mutual fund powerhouse.” Over the years, its funds have excellent performance records and the lowest operating expenses. Other companies he mentions are: Fidelity, Dodge & Cox, Harbor Bond, and T. Rowe Price Spectrum. Later in the book, after explaining a variety of state sponsored college saving plans, the author discusses strategies for paying educational expenses, concluding that no-load mutual funds with a proven track record are the best route.
Toward the end chapters of Personal Finance for Dummies, the author explains various types of insurance people should have to protect themselves. His discussion includes health coverage along with an explanation of Medicare and Medicaid benefits. When buying automobile coverage, Tyson recommends taking the highest deductible possible reasoning that over a period of many years, out of pocket expenses to pay for automobile damage repair is much lower than shelling out high insurance premiums.
The book deals with dwelling insurance, including personal property coverage for the things you own. The discussion of life and disability insurance offers suggestions on how to logically determine what you really need. Then too, the importance of an umbrella policy should not be overlooked. This mega-liability umbrella coverage is usually sold in increments of $1,000,000 and should cover twice the value of your assets. Tyson suggests contacting your auto or home owner’s insurance to purchase such coverage.
To explain all the topics covered in Personal Finance for Dummies would be to rewrite the book itself. In my opinion Eric Tyson has done an excellent job explaining a large variety of financial topics at a level most any reader can understand. This includes me. The book is printed with clever icons in its margins to help you find or notice information that may be useful or that you want to remember. Those icons are posted throughout this review.
I would recommend Personal Finance for Dummies to people like you and me, who learned ways of improving and safeguarding my own current lifestyle. I’ve made a lot of financial mistakes, but now I have the information and mindset to examine, question, and change many of them.