David Chilton has written two books about personal finance, The Wealthy Barber and The Wealthy Barber Returns.
The Wealthy Barber was first published in 1989 and was given a 3rd edition in 1997. The Wealthy Barber Returns was published in 2011.
Admittedly, a lot can change in personal finance in a decade or so, and for that reason, I read both books. I wanted to make sure I wasn’t missing any great advice that Chilton had to offer.
I'm hoping this review will save you time and money. Not to give anything away, but you will only need to buy one of these books (if you do intend to buy either of them at the end of this review).
So let’s start at the beginning!
The Wealthy Barber (1997, updated 3rd edition)
The first book is a narrative, which took me by surprise.
David Chilton couches his advice in a story, told in the first person with himself as the main character. The advice is real, but everything else is fiction; and to be honest, I was a little disappointed to learn that the barber, Roy, was a made-up character. The person giving me advice was just a plot device.
Style
The Wealthy Barber has a hokey, gosh-golly feel. The narrative is a bit campy and it felt silly to read, but there are some simple pieces of financial wisdom that can be found.
What it offers are tried and trusted practices, some of which have been improved upon in the later editions. Some financial minds will disagree with what Chilton is proposing, but these practices will help you save money and be more financially responsible. In our current climate of "buy now, pay later, instant-gratification," this advice is greatly needed.
Related: Most Important Money Lessons To Teach Kids
But for me, the problem was the style, not the advice.
I prefer a no-nonsense approach to financial advice. The point of reading any book on personal finance is to find the right advice and be able to apply it to your everyday life.
The first book was full of dialogue and description. Chilton spends a lot of time making us like these characters and giving them personalities, but the personalities ultimately feel as though they are in a 50s TV show. They are quite vanilla – they even say "gosh!" (and more than once).
To be fair, I’m sure that David Chilton is keeping the language clean for the sake of appealing to a wider audience. But it just comes across as unrealistic.
Advice
One quick take-away: "I can't afford it," is a freeing sentence that will help you save money and will have you stop keeping up with the Joneses.
There is a lot that you can learn from this book. It is a worthwhile read if you’re looking for a good introduction to personal finance. If this is not your first rodeo, then you might want to move on to bigger fish in the sea.
The Wealthy Barber covers all of the basics:
- Save 10 percent of your income. That’s just for the finer things.
- The power of compounding.
- Pay yourself first. Put the money away first because we always manage to spend what we have, no matter what we make.
- Don’t buy common stocks, buy mutual funds. This is general advice because it is harder to make money investing directly in stocks, but is a little outdated.
- The PITA factor. Every financial decision should take into account how much of a Pain In The Ass it is.
- Dollar-cost averaging is key. This math (or myth) only works if you wait for the market to rebound. It always has, but it may take years, making this a long-term approach.
- Buy mutual funds with proven managers. Tony Robbins says past success is no indicator of future success, because few people match performance year after year. So buy the market with index funds.
- Buy global funds. Diversify. This is standard advice.
- Homeownership: The best forced savings program. But only if you sell and only if the market is good. Otherwise, rent cheaper and save the difference in payments.
- Have an emergency fund. Most recommend 6 months’ gross income, but Chilton says that it makes no sense to have several thousand dollars uninvested, gathering small amounts of interest. Keep a couple thousand in reserve and you will sleep better.
- Get a will. Get a lawyer. If you don't, things get complicated with probate and your assets (estate) will be disposed of in a way determined by the government.
- Be specific about how you want your estate dispensed.
- Be clear about complications like divorces, remarriage, deaths, changes of address, changes of business.
- Update once a year. Give a copy to your executor and lawyer. (Have a backup executor in case your first choice can't or won't).
- Have an up-to-date net worth listing with all account and password information.
- Get insurance. Term Insurance. Only enough to take care of your dependents, mortgage and death. And, in the event of a critical illness, have some insurance for that.
- Taxes. The one good piece of advice I found: Track fees paid for investment advice. I did some research myself and I can tell you to refer to line 221 of the Canadian Tax Return or investment management. You can claim these on your taxes as long as what you are claiming is not interest on debt from TFSA, group pension or RRSP investments.
What I didn’t like about The Wealthy Barber
It’s American, so let’s get that out of the way.
The tax advice is almost useless, except for general statements like, "Go to a professional to get your taxes done," and, “Read the tax guide.”
But there are a few other areas in the book that I can’t help but question.
The narrative loophole
There are times when the narrative structure is used to avoid a question.
In a direct way, the humor used could be a disguise for a lack of knowledge or maybe Chilton just didn’t want to dig into the minutiae. But questions are raised and then ignored or brushed off, making it a failing of the book.
For example, Roy tells Tom to "shut up," when he asks about the differences in expense ratios. He does not provide a good answer, but says he won’t have to worry about it because it doesn’t affect him.
To answer this question, Tony Robbins says a 1% difference in fees can result in more than a 20% difference in long-term results because of compounding.
That seems like a big issue to skirt around and to avoid the question seems like a cop-out.
The real estate investment issue
Another issue I had was the way Chilton dealt with the use of real estate as an investment.
Chilton recommends getting a loan to use as a down-payment for buying a house…$18,000 at 10% interest, amortized for 5 years. If the house costs $90,000 and if you rent it for the cost of the mortgage, then you are left with $400 per month for the original $18,000 loan. That would equal $24,000 in expenses.
Chilton recommends selling the house after the 5 year mortgage. He says you can sell it for $125,000 and that you will have $57,000. And indeed you will, if you can sell for that price.
But the housing market has not been reliable. Prices are rising in some areas of the country and plummeting in others. You will have $57,000, but you will have spent at least $24,000 assuming your tenant pays all other expenses for the apartment. You will then have a net gain of $33,000.
But remember this book presents unbridled optimism ‒ where nothing goes wrong.
You aren’t stuck with a house that won't sell. It sells for a profit similar to the one described. You find a house for $90,000 that is respectable and, consequently, needs no repairs, and doesn't make you become a slumlord.
Maybe that term is too harsh. You are, at the very least, an owner of substandard housing, unless you have found a perfect house that has been undervalued.
Let’s just say, there are a lot of "ifs."
Impractical advice
Lastly, I found the book filled with impractical advice and lots of it.
My favorite one is possibly the weirdest advice I have ever read: to create tax deductions, start a business and claim your kids as employees ‒ but only if you have a product that is worth it.
My response: Um, OK, but what is the criteria for a "worth-it product"?
Seems like a recipe for losing money.
To sum up…
Chilton’s first Wealthy Barber book is filled with outdated American advice, strange tips and a narrative that was not entirely compelling.
To be honest, I skimmed through the first part of each chapter, just to get through the pointless banter and into the actual lesson.
The Wealthy Barber Returns (2011)
The Wealthy Barber Returns covers the same ground and improves on the same message as The Wealthy Barber. David Chilton drops the narrative approach, going for a no-nonsense style for a much better fit.
So, if you’re considering to buy one of these books, this is the one.
Advice
The "save 10% of your income" lesson and all the advice from the first book are reiterated and improved upon.
With the 10% rule, Chilton adds that if you are starting late, you will need to save around 2.29 times as much or more than 18%. So, for our purposes, let’s just simplify and say you should save 20%.
Chilton has cut the old, irrelevant ideas and focuses on modern problems, like instant gratification and keeping up with the Joneses, while referencing the greatest minds in philosophy as support:
"It is preoccupation with possessions, more than anything else, that prevents us from living freely and nobly." – Bertrand Russell.
The whole point is to help people live within their means. The message is to avoid buying things you don’t need, because if you want to gain wealth ‒ you have to spend less than you make and save the rest.
The basic math goes like this: If you make S (salary) and you need to save 10% for the finer things in life, and if you want to retire well, then you need to set aside 5-10% on top of that. Saving a total of 20% of your salary.
For that reason, you can only spend:
S x 80%
So for a person making $1,000 bi-weekly ‒ you spend $800 bi-weekly, or $400 weekly, and save $100 every week.
Avoid the curse of renovations
There is a reference to Diderot’s Regrets on Parting with my Old Dressing Gown, where Chilton gives an example of home improvements escalating beyond the original intention.
This is an idea that any homeowner can easily grasp. I need a new bathroom faucet, so I redo the counter-top. And now, that doesn’t match the flooring, so I replace that too. While I’m at it, I will paint the walls, and put in a new toilet, mirror, and bathtub. The interesting thing is that once the bathroom is done, it will look so nice that your kitchen will feel like it needs fixing.
How to avoid the temptation to spend is a major focus in this book and Chilton presents a variety of possible solutions to the problem, including:
- limiting spending by using cash throughout the week as a sort of allowance,
- putting things in an Amazon wish-list for a week before buying them and turning off "one-click" purchasing.
These things help delay gratification, and allow us to think about purchases before making them.
"I can't afford it"
My favorite piece of advice is simple, and it works. Take up the habit of saying, "I can’t afford it."
Say this to your work-friend who asks you out for lunch. Say it to your buddies who want to go for beers on Friday night.
Instead, offer to host a get together at your place where people can bring food. Generally speaking, you can get more for your money by entertaining at home. Board games, and a bbq can make for a better night than shelling out $100 for a meal and drinks at a nice restaurant.
The valuable rest
There is not enough time to go through each piece of advice in this book. Chilton discusses a variety of topics and most are helpful.
But in all honesty, if you have good understanding of personal finance, then neither of these books will add to your wealth of knowledge.
Consider this book as an introduction to personal finance, because it is filled with simple lifestyle changes that you can do right now.
Here is a small sample:
- The Rule of 72 ‒ 72 divided by investment return % = years until your money doubles.
- RRSP and TFSA
- Reverse mortgages
- Use ETFs and index funds
- Investing or paying off debt ‒ look at the higher interest rate and go there
- Financial advisors ‒ look at the MER (management expense ratio)
What I didn’t like about The Wealthy Barber Returns
In both books, Chilton makes an argument for getting your family to fund your child’s RESP.
He says to show up at your parents’ house with brochures for RESPs with the idea of spurring them to contribute through competition with the other grandparents. He recommends grifting your parents…in both books. Not ok.
There is also a bit of humble-bragging and cross-promotion as well. He plugs his Looneyspoons book and other projects he has worked on.
But all-in-all, I still say that it is a good book for beginners.
To sum up…
The Wealthy Barber Returns is an improved-upon version of The Wealthy Barber, with updated advice and a no-nonsense style. And if you choose only one of these books to add to your reading list, this should be the one.
What are your thoughts?
Have you read The Wealthy Barber or The Wealthy Barber Returns?
What things did you like about it? Dislike about it?
Any advice of your own that you would like to add?
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