Financial Self-Control
and the Wealthy Barber

January 3rd, 2009

We all have read books that settled fondly in our minds. Perhaps they touched a chord or taught a valuable lesson. Usually centred on a human story, our favourite books are rarely dry financial texts. Back in high school I recognized the importance of good financial management and decided to read a book I had heard of called The Wealthy Barber. My friends were perplexed: “Wait, you don’t have to read this for class? Why bother then?” It ended up being worthwhile as I learned my single most valuable financial lesson.

Author David Chilton takes a rather boring subject and wraps it in an interesting fictional story about a working-class barber named Roy. By way of good financial habits Roy achieved millionaire status, without the help of heritage or fame. Twenty years ago when the book was originally self-published by Mr. Chilton this type of “financial fiction” was unheard of. Now similar books litter the shelves of bookstores, obfuscating the most important core messages.

Pay Yourself First

Chilton’s technique is smartly referred to as “paying yourself first”. This simply means putting money aside for long-term growth before spending the remaining. The book recommends saving 10% but I venture to suggest more.

The brilliance of this simple concept is two-fold: it forces you to save whilst preventing you from spending.

If the very first transaction that happens on payday is a deduction for savings, you are forced to survive on the remaining. In this way it is a matter of being disciplined by removing the temptation. Fortunately banks are more than happy to hold onto your money. They make it easy to automatically put away funds and even provide ways to tie funds up so you don’t reach into the cookie jar.

UPDATE: I found that it works for the Swiss!

Living Proof

Of the many ups and downs in my life, finance has never been a significant cause of stress. This is no thanks to my income, which has never been significant; I’m no stranger to low-paying jobs! I attribute this financial buoyancy to wholeheartedly employing Chilton’s main technique. While stress may come from trying to enjoy life of a smaller budget, it’s drastically less difficult than eradicating debt.

Worth a Read

With countless financial texts vying for your attention you need to make wise choices about which to invest you time in. Chilton’s book is a classic success story, published originally in his basement and later selling millions of copies based on merit rather than marketing. Good financial management is an intricate puzzle and while I’ve discussed my favourite piece, there are lots of other concepts required to get the final picture. The Wealthy Barber takes those concepts and distills them to the most important core messages while providing some literary charm. Skip the other books and give it a read.