My Favourite Takeaways – The Wealthy Barber Returns (Part 2 of 2)

The Wealthy Barber Returns

In Part 1 of 2, I provided an overview of what I liked (and a few things I didn’t like) about The Wealthy Barber Returns by David Chilton.

For those that haven’t read this soon-to-be classic, David’s book is not a fictional story like the original, The Wealthy Barber but more like a collection of thoughts and opinions about money management principles.

Over the last five years, I’ve read dozens of personal finance and investing books, but this one ranks right up there near the top.  Probably the biggest reason why I liked The Wealthy Barber Returns was because of the witty straight-talk and time-tested advice David packaged for his readers.

This post will highlight all the gems I enjoyed from The Wealthy Barber Returns and in some cases, offer how I’m trying to apply David’s principles to my financial independence journey.

A.     David Chilton on the topics of saving, spending and borrowing

On saving:  “One of the biggest reasons that it’s so difficult to save is that no one out there really wants you to.”  David goes on to list some of those people…“your kids, friends, your real-estate agent and bankers” to name a few.  “With the teams stacked against you, spending less than you make won’t be easy.  People are going to fight you every step of the way.  And the person who will fight you the hardest will be yourself.”

On our society that is consumed with consumption:  “In reality, all our stuff weighs us down.  And our pursuit of “more” often distracts us from what’s truly important in life.  I genuinely believe that our never-ending material quest is not only sabotaging our financial tomorrows, but also negatively impacting our psychological todays.”  We’re trying to get away from “things” in our life and working towards saving money to enjoy more “experiences”, like travelling.

Use the power of perspective as a recipe for less material goods in life:  “So, we’re told our appetite for more stuff is being wetted by our expanding reference groups.  The lifestyles of more prosperous friends, colleagues, and even “TV acquaintances” form the vortex of excessive spending.  I couldn’t disagree more.  In fact, I advise you to do exactly the opposite:  expand your reference group as much as possible.  Chilton goes on to tell you why:  “Frustrated that you can’t locate a high-speed wireless connection?  Remind yourself that more than a billion people don’t have electricity.”

David’s most powerful words for the avid spender, learn to say “I can’t afford it.”

On his main frustration (debt) and how to help David avoid becoming even more frustrated and break the debt cycle:  “Save first.  Spend the rest.  Good.  It is really that straightforward.”

“When I sit down with people who have saved sufficiently throughout their lives, I see three common denominators:

(1)   They paid themselves first;

(2)   They started young, or if not, they compensated with increased savings rates; and

(3)   Their debt management followed the approach outlined in “Owe No!”

“That’s it.  Nothing fancy.  No complicated techniques. Common sense and discipline.”

B.      David Chilton’s random thoughts on personal finance

On predicting the markets and looking for people who can do so:  “Stop listening to people who think they do.  If your financial plan’s success is contingent on accurately predicting the future, you’re in trouble.  Uncertainty rules.  That’s precisely why it’s wise to build a balanced, diversified portfolio and focus on the long term.”

On indexed products and why they make sense counter to our desires to be above-average investors:  “When you invest in the stock market, you have two choices:  (1) You can buy an index fund or exchange-traded fund (ETF) that matches the market’s returns (boring); or (2) You can try to beat the market’s returns (exciting).  The vast majority of us go with the latter.  We weren’t raised to settle for average.  We all want to be above average.  All of us.  Above average.   But that’s a problem.  A mathematical impossibility.  On average we have to be, well, average.  In other words, the aggregate return of investors trying to beat the market must match the market’s return.”  For a couple of years now, we’ve invested in broad-market ETFs.    

On professional money managers:  “When you hand over your hard-earned savings to a professional money manager you deem smarter than yourself, be careful.  Because you have the option to buy an index fund and match market’s return, it’s irrelevant if he or she is smarter than you.  Instead, what matters is whether he or she is smarter than most of the other people who are smarter than you.”

On mutual funds and mutual fund performance:  “I have yet to come across a single entity who or that can consistently pick the future champions of the mutual-fund world.  That doesn’t mean they’re not out there.  I just haven’t met them.  Maybe you can do it; maybe your advisor can.”  “I have absolutely no doubt that there are outstanding mutual fund management teams out there.  Even a few who will overcome expenses and put up market-returns over the long term.  I also have no doubt that many advisors genuinely and passionately believe they can identify them ahead of time.  I just wish I could.”  I used to own mutual funds, for about 10 ten years.  I don’t own any mutual funds now.

On day trading penny stocks? “Stop it.”

In his chapter called battle of abbreviations (TFSA vs. RRSP): “If you don’t love TFSAs, sorry, you’re nuts. But that doesn’t necessarily mean you should love them more than RRSPs.” “Based on various assumption sets I used, the TFSA won a surprising percentage of the time (though usually not by a wide margin). In fact, for most low-income earners, it was the victory under the majority of scenarios.”

Regarding paying down your mortgage, even in low interest-rate environments (like now), it may “end up being a clever move if rates rise significantly.”

On the subject of DRIPs (Dividend Reinvestment Plans):  “I love the concept of DRIPs – dividend reinvestment plans.” ending with “gotta love it!”

Finally, in his “A Man With a Plan” chapter that would make Roy the Barber proud, Chilton summarizes his book crisply when discussing one of the best financial plans he’s ever seen:  “The farmer and his wife lived within their means.  They used forced savings.  They took advantage of RRSPs and compounding.  They kept costs down.  They took the long-term view”.  I’d like to be that farmer 🙂

Readers, what are your thoughts on The Wealthy Barber Returns?   Did you like my two-part review?

I’d like to hear from you!