I recently took a glance over the book The Five Lessons a Millionaire Taught Me by Richard Paul Evans. Within the first couple minutes I gathered that the book was 88 pages of common personal finance advice. Don’t get me wrong, it’s a great book for those who aren’t familiar with personal finance concepts, such as pay yourself first, the concept of time value of money, and picking up additional streams of income, but if you’re beyond the 101 stuff, you may want to skip the book.
The book is divided into five lessons which I’ll go into a bit more detail below.
In the preface I liked the simple, but clear quote below:
“The wealthy understand the principles of accumulating wealth and live them.”
Although a lot of us may understand the principles, the hard part, like any endeavor is making them a habit and living them each and every day.
Lesson 1 – Decide to be Wealthy
One of the toughest hurdles to overcoming your current situation is simply believing it’s possible to be wealthy. Many people don’t make the decision to become wealthy because they either think it’s not possible, or they have a negative connotation with much, such as the belief that “money is evil.” In order to become wealthy you first have to decide you’re actually going to do it and hold this as a matter-of-fact belief.
Lesson 2 – Take Responsibility
Once you’ve decided to become wealthy you need to know how much money you have, know when your money is coming from, and where it’s going. That means you’ll have to create a net worth statement, along with a budget.
In order to be responsible for your finances and ultimately becoming wealth you can’t be blind to your current situation. Confront yourself and find room for improvement.
Lesson 3 – Keep a Portion of Everything you Earn
Saving at least 10% of your income along with demonstrating the power of compounding interest were the main topics in this chapter. Pay yourself first, invest, and live comfortably later on.
Lesson 4 – Win in the margins
Once you’ve got the basics down, aren’t spending more than you earn and are more comfortable with your situation begin to “win in the margins.” Richard discusses this as finding additional ways to make extra money. In the book he gives examples of a sawmill worker who saw an opportunity to use waste wood for profit along with the story of Warren Buffet who delivered newspapers, saved his money and bought 40 acres of rented farmland as additional income. There are five inspiring stories, but the point of the chapter is simply to find additional income streams and use them to become wealthy faster.
Lesson 5 – Give Back
In the last lesson Richard discusses what one can do with their wealth once they’ve gained financial freedom. He references Andrew Carneige who gave three choices:
1. Give it all to your kids.
2. Give it away when you die.
3. Give it away while you’re alive.
Carnegie decided that the best route is to give back while you’re alive rather than having spoiled, entitled children, and create family resentment.
Overall the book is a good primer if you haven’t read too many personal finance books. However, it reminds me of the ABC style concepts discussed in George Clayson’s 1928 classic “The Richest Man in Babylon”
If you’d like to read the book you can buy it here.