The Wealthy Barber Returns
I wasn’t always interested in personal finance or investing.
Sure, many years ago, I piled money into mutual funds for my RRSP, I was cognizant of paying down my high-interest debt and probably like you, I figured an emergency fund was a good idea. I did these things because they made some sense. But like millions of Canadians, I not only got some reinforcement these were absolutely the right things to do, I found out I was missing out on other essential elements in my financial plan when I read The Wealthy Barber. Insert David Chilton here with a huge thank you.
David Chilton wrote The Wealthy Barber in 1989 which went on to sell over 2 million copies and made David a household name in the process. Over a few lessons, the tale in The Wealthy Barber eavesdropped on conversations between Roy, the barber with other characters named Dave, Dave’s sister, Cathy and Tom about the basics of financial planning. Roy, our unlikely hero, starts off with the golden lesson of “pay yourself first” and the story evolves with wit and sensibility from there, talking about a 10% long-term savings commitment that when combined with other sound financial habits can help you retire with hundreds of thousands of dollars over the years. The Wealthy Barber was and still is timeless advice.
Since reading David’s best-seller, I’ve tried to emulate much of what Roy the barber told Dave, Cathy and Tom. I’ve made some mistakes and strayed from my financial path now and again over the years because, well, life happens. I lost my focus and only in the last five years or so did I gain it back. So, when I heard The Wealthy Barber Returns was hitting the shelves last fall, after a couple of decades from the original Barber release, I knew I had to buy the next one. I’m very glad I did.
The Wealthy Barber Returns has a familiar title but the format is anything but. This is not a novel, more like a collection of short stories or opinions from David as he chats to Canadians about money management principles or in some cases lack thereof. David’s book is sub-divided into two main sections. The first, offers David’s insights about saving, spending and borrowing. The second, David shares his random thoughts about personal finance and in some cases, he is quite random. Throughout the book, David’s wit shines and you get the sense he’s in your living room, watching Hockey Night in Canada over a beer with you discussing all things money between whistles and periods in the game.
In The Wealthy Barber Returns, you get a sense of how frustrated David is with the savings behaviours and rates of Canadians, encouraging you, me, and everyone else to do much more of it. Yet he does this without being overly pushy. You also get the sense of how passionate David is about personal finance, with his goal to make you a better saver, a smarter investor and give you more confidence as you read his book. In the end, The Wealthy Barber Returns improves your financial literacy so you can make better financial decisions. Not many financial books can make this unbiased claim.
The Wealthy Barber Returns does not speak from some ivory tower. David was humble to acknowledge some facts in the original were a little off the mark – like you could expect your RRSP mutual funds to make double-digit returns. Not in this decade David! Heck, I don’t even own mutual funds anymore! David also fell on his sword a bit when he argued in The Wealthy Barber that instead of an emergency fund, people should just set up a line of credit for the appropriate amount. “Whoops” David proclaims in his new book.
20 years later, you’ll find our returning barber is now a strong advocate of passive investing using index funds or exchange traded funds (ETFs), living within your means, saving first and enjoying the rest – the latter which is nothing new but refreshing because life is for the living. I think that’s the reason I liked this book so much. Great writing combined with a common-sense approach every Canadian can employ and embrace. This book covers saving, paying-down debt, understanding mortgages, TFSAs, RRSPs (including which account he prefers), life insurance, dividend-paying stocks and he even has a potpourri section.
Stay tuned for Part 2 of 2, which will include my favourite takeaways from this must own read.
Have you read The Wealthy Barber Returns? Do you like it as much as I did?
Waiting for my book to come in.
I am working on a number of clients permanent (like whole life which grows every year) and a mix of term vs. Buy term and invest the difference.
Factors in the plan is also paying off mortgage asap. Which is good up to a point.
Unless one gets a 6% or better return in retirement having (no term insurance coverage at retirement …the premiums are lost forever)
The better place to be is have less money and permanent insurance.
As an example if Person A one only got say 4% (more money/no insurance)
He runs out of money @ 85.
Person B (less money, but permanent insurance) they run out of money @ 82 but have a lot of permanent coverage. At that point they could sell the house spend more money and leave the estate more money than Person A.
This does not factor in the fact they could buy an annuity in their 70’s and get a 9% Plus guaranteed return for life pay less taxes and are covered by permanent insurance.
The best way to show this is share/ scan the different age points on the financial software.
We don’t know rates of return in the future but having poor returns and pulling money out at the same time really makes the real returns even worse with no time to recover.
My thoughts for people in their 50’s and older is real estate to fall down hard in the near future. Just to ad to the tough environment we are in. So really retirement should be called the Spending Game. How to use $$ to have a comfortable retirement while taking on less risk.
I’ll be interested to know what you like (or don’t like) about the book. Overall, I thought David’s book was very well done.
Regarding life insurance, I like your idea of “buying term and investing the difference”. Smart stuff.
Thanks for your comment. I always appreciate the professional insight.
We all know how many terrible do-it-yourself investors are out there. The average investor in the S&P 500 underperforms the index significantly. There have been a number of studies on this topic. Also, this is all very rational, what about the emotional side of things? What if a client is passionate about leaving a guaranteed legacy, regardless of the stock markets? Permanent insurance allows for a tax-free transfer of wealth. Most projections run a net return on premiums paid of around 4% when the client is in their 80’ies. If you don’t need the money, that might be an option to investigate.
Unless you have a desire to leave a legacy, I’m not convinced you should buy more permanent insurance than you need to offset the catastrophic loss that is a loss of a loved one. I just don’t see the need personally but every financial plan is different!
Ah, you’ll enjoy the latest book FG.
I continue to recommend both the original and the recent sequel to anyone who wants a quick fix to their financial problems. I tell them that if they can’t get through those books then they probably aren’t ever going to have a decent financial plan. I have actually pitched that they be required reading in schools (to no avail obviously).
Well said and agreed. If you can’t or don’t want to read David’s books, maybe DIY investing is not for you. Thanks for the comment!
Just like so many other my investment journey began with “The Wealthy Barber”. I recently put a hold on “The Wealthy Barber Returns” at the library but there is a long line-up before my turn. That’s OK, I will devour your favourite takeaways as an appetizer before reading the book itself ; )
Just before Christmas I caught an interview with David Chilton on Michael Campbell’s “Money Talks” radio show. In it he reendorsed my belief that successful investing is based on ordinary things like spending discipline, paying yourself first, keeping out of debt and minimizing fees. So simple and yet not so easy!
Yeah, it will be an appetizer next week for sure…I hope to post Part 2 next week.
I really wanted to post my transfer of DRIPs and SPPs stocks article this week; so that happened before Part 2.
You seem to be well-read, and really understand your stuff Elemag, so the Returns book is likely a very good refresher for you.
If nothing more, Dave Chilton’s 2nd book might validate everything you already know. With personal finance and investing, confidence and “mental toughness” is definitely an asset and this book will help.
I going to read it. Can you tell me about his take on insurance?
I recall The Wealthy Barber Returns has a section entitled “Potpourri” and in it, David makes one of his only referencees to life insurance. Something along the lines of…understand we’re in a low interest-rate environment and Canadians should not assume you can make 8% on insurance proceeds that result from a family member’s death. Insurance is rarely discussed in this book.
I recently read ‘The Wealthy Barber’ and thoroughly enjoyed it. I realize that some things (specifically the rates of return he talks about) are outdated etc.
PC Financial is currently giving a copy of ‘The Wealthy Barber Returns’ with each new mutual fund that is opened (minimum $25) so I inquired about it the last time I was at the grocery store. The clerk told me he didn’t yet have all of his certifications to sell mutual funds but took my information and said he’d call me as soon as he did and I could come and open the $25 mutual fund and get my book. When I was in doing my groceries yesterday the same clerk was in the financial pavilion. I asked if he could sell mutual funds yet and he said he was still waiting for something but gave me the book anyways. Sweet! I started reading it last night and so far it seems great! The Readers Digest had an excerpt from it a few months back that I thoroughly enjoyed!!
Gave you the book – great! Geez, I hope I don’t spoil your reading if I post my favourite takeaways Part 2 of 2 over the next week? Read it fast 🙂
The Wealthy Barber was the first book I read about money. I read it so early I did not understand most of it. So I read it again when I was about 17 and it finally stuck. Then I read The Wealthy Barber Returns almost as soon as it came out. I loved it even more, maybe because the topics are more recent and relevant, maybe because it was really funny. I loved it and immediately gave it to my mom to read and will offer it to anyone who needs a little lesson on money.
Same, The Wealthy Barber was one of the very first personal finance books I read, and so glad I did.
David’s second book was excellent – as you will see, I have a host of great takeaways from this book ready to post in Part 2 of 2.
Stay tuned and thanks for your comment.
I LOVED David Chilton’s book the wealthy barber.
It was also the first PF book I’ve read and lent to my be a friend.
It changed my life and I owe my passion for personal finance to David!
I also loved his second book too but nothing beats the anecdotal story telling style in the first book.
Agreed Y&T, his second book was outstanding. Come back soon to check out Part 2 of 2 🙂
I read the first book pay yourself first which is the single best advice. I have not read his second book.
The problem was several things David did not understand or know at the time. One is rates of return.
Look at page 34 of his first book. “Cathy, if you invested $2,400 a year for the next thirty years and averaged a fifteen percent return a year….”
The other is taxes. David talks about maxing out RRSPs. What about the end game…when you retire? What about taxes? Clawbacks? Government rule changes?
Life insurance. David talks about term insurance is only one you ever need? Does he like renting or owning? I wrote a guest blog about annuities here, let me know if one can get 8% or better guaranteed in retirement.
Any one who is incorporated wants to pay less taxes wants to protect their family buys permanent insurance and lots of it. Business owners think differently they like to pay less taxes and they like owning and not renting.
Let me know on his second book if he has changed his thoughts.
Thanks for your comment. You’re right, there were a few things “off” when we look back at David’s book, now 20+ years later.
Taxes are something I’m much more mindful of, as I continue to invest – government rule changes and clawbacks are enough to freak me out! 🙂
I hope to post my favourite takeaways, Part 2 of 2 in a few more days. Have you read his second book, Returns? You’re a well-read guy, so I assume you have or are planning on it?
Just like everything in life this book has to be taken with a grain of salt….or two. He describes very specific situations, but as we all know, life is never the same for two people. So, what might work for one person, won’t for another. We are plagued by exuberant return assumptions and procrastination. Unless you are disciplined with creating a financial plan, sticking to it and tracking progress, this can be an exercise in futility. One example that just came up in our practice today is whether to obtain life and critical illness insurance on kids. If we follow the book, the answer is ‘no’. But, if you have ever been to a children’s hospital, you will understand the value of locking-in health for kids as soon as possible. Most kids survive a serious medical condition, but it renders them uninsurable for life usually. Maybe he will add this pearl of wisdom to book 3?
Interesting take on critical illness insurance for kids. I would be worried about the underwriting process and what is/is not approved for any claim.
Thanks for your comments.