A Quick Cut of The Wealthy Barber
The Wealthy Barber was an excellently told story that showed the importance of financial planning for anyone, no matter where they were in their life. Roy, “the wealthy barber”, was a very wise man who was able to amass a great fortune from meager beginnings by using good sense and wise investing. David Chilton, the author, was able to show the importance of “paying yourself first”1, the need for wills, saving for the future, proper life insurance, retirement planning, and much, much more. I found the methods for teaching in this novel extremely helpful. I used the term novel deliberately.
It was so much easier to understand, and, perhaps more importantly, pay attention to this fictional story than the normal textbook-style writings. The characters all had different situations which called for different investment styles and the “barbershop regulars” offering their insight added a bit of humor. I found Roy to be the perfect choice for a book of this nature. Who would suspect that the town barber would be one of the wealthiest men in town? What was even better is that he was able to make his money work for him in such a simple way that it appears more than obtainable.
The story is told from the viewpoint of David Richardson, a 28-year-old married teacher with a child on the way. After taking a “Self-Analysis Financial Planning Test” (11), David realizes that he is in dire need of some advice on how to better his understanding and position with his finances. He went to his father who told him he had realized just six years prior how he had needed help also. His father’s solution was to speak to Roy, the barber, who had taught him the general details of getting finances in order. David’s sister Cathy was a successful and single entrepreneur.
She had a very substantial income, but was also unsure of the best way to take care of it. David’s best friend, Tom Garrett, was a single bachelor with an average income and a flair for spending. All three made a monthly trip to visit Roy to receive tips on how best to take care of each of their futures. Besides the insights of Roy, they were also helped by Jimmy, Clyde, and James Murray. The three were regulars at the barber shop and they had some experience of their own. The most important point that someone would need to draw from this book is the “Ten Percent Solution”.
This is something that anyone could do to better themselves financially. The “solution” is to invest the first ten percent of all you make for long-term growth (32). That’s it! The magic of compound interest will do the rest for you. Roy pointed out that where the ten percent is invested could differ with each of the student’s situations, but that the act was the golden rule. For most, Roy felt that investing in equity-oriented mutual funds was the way to go (44). It provides a forced savings, is very long-term, and utilizes dollar-cost averaging2. The other option was investing in real estate.
This option was a little more hands-on involving proper timing, borrowing of funds, and upkeep of the property; however, many may find this more appealing. Roy suggested that they start with investing in mutual funds and after a few years add in some real estate property. In the next month, Roy pointed out the value and responsibility of having a will and proper insurance. I knew that a will was necessary, but I, like many, never realized just how much extra work and frustrations would be added to your dependants if you didn’t leave one upon your death. Why would you want to make things harder on your grieving family?
It is very important to get these affairs in order no matter how uncomfortable you feel talking about death. As for insurance, I was shocked to realize just who needs it and how much they really need. Roy thought the better term for “insurance” would be financial protection for dependants or income replacement insurance (78). These new terms, though simple, are a vast improvement. Going a little more in depth, Roy pointed out that your insurance needed to be able to take care of your dependants and allow for the proper winding down of your financial affairs including eliminating debts, settling taxes, and paying for funeral expenses.
Here is the “light bulb moment”3: If your living estate is sufficient to cover these items, no insurance is needed! We are always taught to be insured. It never would have crossed my mind that if everything would be able to be taken care of with the wealth I already had accumulated; insurance was an unnecessary expense (78). Roy also pointed out how it is important to have business partners and spouses insured for the proper amounts. He then went on to explain the different types of policies in clear and understandable terms and made the whole topic less daunting.
In the next few months Roy informed the three “students” of the importance of retirement planning, possible home ownership, the importance of saving, and also gave some advice on investments and income taxes. I found all of these sections very insightful and helpful. There are just too many great facts to go through them all. One that I would like to point out is how he explained that renting an apartment is not just “throwing your money away” (143). I found this reassuring because this is my current situation and I was thinking that I was possibly hurting myself by renting.
Tom’s reasons for renting are the same as mine. I would like to own a home eventually, but at this time renting is optimal because “I hate fixing things, mowing the lawn, wallpapering, and all that domestic junk (143)”. Not to mention the extra time and money that is spent. I found this book to make a lot of sense. I thought it was very informative and clearly written. It was very much a laypersons book. I have already recommended it to at least four of my friends. When it comes from the girl who hates to read, they know it must be worthwhile.
My favorite part is the writing style that Mr. Chilton uses. It is written in such a way that right now my life is most similar to Tom’s and I associated most with the advice given to him. However, in a few years, I can pick up the book again, reacquaint myself with the suggestions given to Cathy, and follow those instructions. Still later, I can switch to Dave’s character when I am starting a family. This book will be able to help me in years to come and in turn for the rest of my life. I felt that the book paralleled very nicely with the things that we have learned in class.
The textbook, obviously, is much more technical and involved but I found this to be a very good summary and explanation of everything we are being taught. I feel that the book also had many commonalities with your views, Mr. Alexander. The one that sticks out as differing was renting. Many people feel the way that you do about renting and even though you agreed that it was okay for people my age starting out, I get the feeling that you think that home ownership should be done as soon as possible whereas Mr. Chilton seems a little more relaxed on the subject.