August 29, 2018
Financial Advice From a Wealthy Barber

By Sylvia Salguero

The Wealthy Barber remains one of the simplest and most informative financial books of all time.  Though its popularity has waned since the nineties, the advice offered by author David Chilton has stood the test of time.  Here are the seven financial tips the small-town neighborhood barber says we should all follow if we want to succeed with our finances:

  1. Put 10% of your income in long-term investments

10% of one’s earnings should be saved and invested for the long-term.  According to David Chilton, this is the best and easiest way to become wealthy.  The author subscribes to dollar-cost averaging, and keeping things steady and boring and growing for the long-term.  The key here is making sure 10% is consistently saved each paycheck.

  1. Take care of your dependents with the proper amount of insurance and estate planning

Another way to label life insurance is “financial protection for dependents, or income replacement insurance.” This is because life insurance has nothing to do with us and everything to do with our dependents.  In short: it must make up for the loss of income if something were to happen to us.  Along with life insurance, a will is also imperative.  *The state’s determination of where the money goes if we do not have a will is NOT how we would likely distribute the assets.  If you haven’t written a will or updated it recently, do it now.  Draw up a will, choose an executor (and a backup executor) and have a net worth summary of all your financial assets and liabilities in an easily-understandable format to ensure your entire estate is handled appropriately upon your passing. The alternative is not good.

  1. Put another 10% in retirement savings accounts

Once we’ve started saving 10% in long-term investments, save an additional 10% for retirement by taking advantage of employer matches and tax sheltered or tax deferred investment accounts.  This will be a great addition to building comfort in retirement.  Most people believe their expenses will go down in retirement.  Sometimes this could be true; in many cases though monthly expenses in retirement actually go up.  The more you have saved for your later years, the better off you will be.  This is a higher number than you might think.

  1. Own a home only if it’s right for you

Pros of homeownership:

  • Forced savings (just make sure the home is not your only investment)
  • Pride of ownership
  • Partial tax-free gains available when selling primary home
  • Potential to leverage the home equity if need be

Cons of homeownership:

  • Interest costs of carrying a mortgage (essentially the reverse experience when it comes to compound interest)
  • Paying for property taxes, insurance, utilities, upkeep and the time required for maintenance
  • Many homeowners never benefit from their forced savings in retirement because they never downsize their home
  1. Forced savings beats budgeting

There is little need to budget when you pay yourself first. If long-term savings, retirement savings, insurance premiums, the mortgage payment, and fixed expenses come off the top of a paycheck, there’s little need for a line by line budget.  That said a spending audit is a good thing to do on occasion to see where the money is going.

  1. Debt repayment offers the best return

There is no better return than to eliminate debt. You’ll find sleep comes more easily when you’re earning interest rather than when you’re paying it.  Why? Because when compared to investment returns, a debt repayment return is:

  • made using after tax dollars
  • does not experience loss due to inflation
  • is guaranteed
  1. Use strategies to minimize your taxes

 We need to pay attention on how to reduce our tax burden, and we can do this in two ways:

  1. Using tax-sheltered and/or tax deferred accounts, and by maximizing these within the household if we have a spouse
  2. Becoming familiar with all the deductions and credits we’re entitled to

There it is: seven important lessons that anyone—including a small-town barber—can use to build significant, life-changing wealth.

* This is the advice offered by “the barber” in the book written in 1990.  In most states a Family Trust is the only instrument that will avoid the long process and expense of going through Probate.