Book Review: Your Money—The Missing Manual
Your Money: The Missing Manual by J.D. Roth.
Books about managing your money succeed or fail at the point when the author chooses what to present as unbreakable rules versus what to present as hints, tips, suggestions, or examples. Happily, J.D. Roth's new book succeeds admirably.
In some areas of personal finance, there really is only one right answer. You need to spend less than you earn — and what you spend needs to cover all of your needs and at least some of your wants. If you can't do that, you're going to fail.
In other areas of personal finance, there are many choices that can lead equally well to success. You can make a budget that paints in broad strokes or one that goes into considerable detail. You can budget by the month or by the year. You can do it with a piece of paper, a few envelopes, a spreadsheet, special budgeting software, or a web-based tool. Roth lays out the options clearly and talks plainly about the pros and cons. You'll finish the section on budgeting and tracking with a clear set of options and enough information to make an informed decision about what to try first. And, if whatever you try doesn't work, you'll also have the information to analyze the likely cause of your failure and some guidance on what to try next.
What Roth does especially well is nail down the relationship between those points. Tracking and budgeting are tools for taking control of your finances. Taking control of your finances is what personal financial management is.
Here's another small example. The book describes the classic "debt snowball" strategy for getting out of debt. The standard advice is to attack your debt in order by interest rate, paying down the high-rate debt first — that's the cheapest option. Many people, including Roth, find it more encouraging start with the lowest-balance debts. Those debts can be extinguished reasonably quickly, producing an early success that can help with motivation. Plus, each minimum payment eliminated makes the household's finances a bit less fragile (because it adds some daylight between your take-home pay and your expenses). Either way can work fine, and Roth does a good job of laying out the pros and cons of each alternative.
Roth's general philosophy of personal financial management matches my own so closely that it would take far more space to list the many things he's gotten right. Here's just a few:
- There's a great chapter of frugal tips. Following any one will save enough money to pay for the book.
- The section on how to sell your unneeded stuff is excellent.
- He lays out the rent vs. buy for housing in a clear, balanced fashion.
- He gets the essential principle of insurance exactly right: bear the risks you can afford and insure the rest (i.e. buy only the insurance you need).
- I particularly like the way he begins the section on the right way to buy a car by pointing out that "financially, the best car-buying decision is almost always not to buy one," and then ends it with a lovely section in praise of car-free living.
There are a few points where my own take is a bit different, but they're all pretty minor.
For example, he spends half a page on targeted savings accounts — separate accounts where you save for some specific purpose. (Most banks now allow you to do this within a single account, with named sub-accounts that are really just a bookkeeping artifact at the bank.) I think this is wrong-headed, although I certainly understand the people who think it's motivating. It's better to manage your money in a unified fashion, treating your entire portfolio as one big lump that supports all your goals, and then separately make a coordinated plan for satisfying your wants.
As another, after discussing rent versus buy, he talks about the pros and cons of paying your mortgage down early versus paying it off over 30 years, but I don't think he gets this one exactly right. The right analysis isn't "pay early" versus not. The right analysis is, "How should I allocate my cash to cover all my needs and as many of my wants as possible?" One piece of that is allocating money toward your investments; paying down your mortgage should be in that mix. There are only a few investments that will give you a secure return as high as paying your mortgage down early — a 401(k) with an employer match is the only one that comes to mind — but the point is that this is an investment decision, not a housing decision. Considering it in the context of housing just confuses the issue.
Seriously, though, my few disagreements are all at that level — minor nits. If you need a book on personal finance, Your Money: The Missing Manual is a solid choice. It gets all the important stuff right, and does a great job of distinguishing between that stuff (that you have to get right) and the peripheral stuff (that you can do any of several different ways, as long as you do it).
Disclaimer: J.D. provided a free copy of his book and this post contains affiliate links.