Tag Archives: Financial Planning

Review: The Wealthy Barber vs. The Wealthy Barber Returns by David Chilton

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About a year and a half ago, I realized how ignorant I was with regards to money and started to educate myself in matters of personal finance in order to resolve my ignorance. Since then, I have read a number of books and articles, significantly improved my spending, started living below my means, and started saving. As I began my journey to becoming financially literate, one book that I was always recommended was The Wealthy Barber by David Chilton (1989). The book being nearly 3 decades old, I was hesitant to read it since I know financial matters are time sensitive. What I decided to do instead, was read The Wealthy Barber Returns by David Chilton (2011) first, then go back and read Chilton’s first book.

I’ve actually read The Wealthy Barber Returns twice. The first time was in January 2016. The second time was just last month to get a refresher before starting his first book. I credit Wealthy Barber Returns with kicking my butt into gear and getting me to save at least 10% of my income, and opening up a RRSP. The illustration that caused me to do so was the following from this book: twins open up RRSPs. Each of them contributes $4,000 a year at 8% rate of return compounded annually. Hank opens up his RRSP and makes these contributions starting at age 25 for 10 years. Simon contributes starting at age 35 for 30 years. Because of the “magic” of compound interest, at 65, Hank’s RRSP is worth $629,741 and Simon’s $489,383. In spite of the fact that Hank saved for a third less time, he comes out $140k ahead by starting early. After reading this, I knew that even if could only contribute a few hundred dollars a year to start out, it was worth starting in my young 20s to get the compound interest ball rolling.

Besides a 10% fund, I also appreciated the various advice found in The Wealthy Barber Returns. Some of his advice is very simple (If shopping is your weakness and causes you to waste money, avoid the malls) while other advice is more complicated and situational, such as his banter on TFSAs vs. RRSPs and renting vs. owning. Although I agreed with the majority of what Chilton had to say, I did disagree with him on a few points-the main one that sticks out is his dislike of emergency funds (he claims that although great in theory, they don’t work out in practice). Regardless, I still believe The Wealthy Barber Returns is still a good introductory book for finance for Canadians- it certainly helped me better my finances.

Now onto Chilton’s first book- The Wealthy Barber. The first thing that surprised me when I started the book was the fact it was put in story format and didn’t discuss finances until Chapter 4. The narrative format has been praised as helpful to get the average reader engaged in a topic they otherwise wouldn’t have touched, but for me, knowing that the characters are fictional I was bored and ready to get to the heart of the book. I hate to say it, but if the useless banter between fictional characters were removed, the book would have been under 100 pages. However, I did get a refresher on things I already knew and learned a few things as well. The main point of the book is “save 10%- pay yourself first” which is an excellent reminder and cannot be emphasized enough. Chilton also talks about trying to evaluate your possible retirement needs and save in an RRSP, which is so crucial in this day of fewer pensions.

Nonetheless, I have to admit this book is dated. It started with the characters referencing VCRs several times, and more concerning, outdated financial advice. For example, when referring to RRSPs, the characters never mentioned the Home Buyers’ Plan (HBP) which allows you to withdraw up to $25,000 from your RRSPs to buy or build a home. Same with TFSAs- they came about in 2009 (20 years after the publication of this book) and they are a great way for Canadians to save, so someone starting with this publication would miss that valuable info. Also, a few weeks ago the government announced they will be doing away with the Canada Savings Bond program which was mentioned numerous times throughout this book as an option for saving. And when it comes to investing or buying a home, the characters referenced making 13% on a mutual fund annually, buying a home for $57,000 (at an 18% interest rate!), and buying a condo for $80,000. Any Canadian who gets their percentage figures from this book is going to be really surprised when s/he looks online for modern prices.

For all these reasons, I would much rather recommend The Wealthy Barber Returns over Chilton’s original publication. Finances are a time sensitive thing: prices and percentages change, new products are introduced and old products are done away with. Even though The Wealthy Barber is encouraging in some ways, it’s too out of date as a beginner’s guide to personal finance. My recommendation is to stay within the past decade for anything to do with personal finance; possibly less if it’s about a specific product.

 

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