The Wealthy Barber – Book Notes

Everyone’s Common-Sense Guide to Becoming Financially Indepent

Main Takeaways

1. Pay yourself first. Invest ten percent of all income automatically.
2. Only get life insurance if you have dependents. One should not confuse insurance as an investment.
3. Set up a will for when you die. Everyone should have one.
4. Buying a home can make sense but is highly dependent on the specific context.
5. A dollar saved is 2 dollars earned.
6. Set up an emergency fund with three to six months of living expenses.

Book Notes

Get Rich Fund

1. Pay yourself first.
   • Automatically invest 10% of each paycheck.
   • This is in addition to the money you save for retirement. It is not a retirement plan.
2. Invest the 10% in an equity-oriented mutual fund.
   • You’re investing for the very long term so you can afford the extra risk.
     • Gradually decrease the risk as you age.
     • The rule of thumb is to have your age in bonds and the rest in stocks.
   • Do not pick individual stocks for this fund.
   • Do not take it out.
   • Choose a fund with low fees (MER should be low).
   • Index funds beat the vast majority of managed funds over time.
3. Dollar-Cost Averaging
   • By regularly investing a fixed amount, you will buy more shares when the prices are low and less when the prices are high.
   • Remember that we want to buy low and sell high.
4. Invest in real estate if you can. Buy and rent out a property.
   • Only invest in real estate once you have saved a substantial amount and you want to deal with the potential complications. Investing in a fund is by far simpler.”Mutual funds “have a low PITA factor.” (Pain In The Ass factor)” – David Chilton
   • The rent from your tenants should cover your mortgage.
   • Invest your 10% monthly into paying the other expenses of owning a house.
5. Pay off high-interest debt before investing.

Life Insurance

1. The purpose of life insurance is to provide for your dependents when/if you die.
   • You don’t need life insurance if you don’t have dependents.
   • You can stop paying for life insurance once your children become financially independent.
   • You don’t need insurance if you have enough wealth to support your dependents after your death.
   • If you have no dependents but have nothing saved, maybe get a small one to cover the costs of the funeral.
2. Consider disability insurance
   • The odds of a thirty-year-old being disabled for a one-year period during his life is one in four. 

Get a Will

Set up a will for when you die. Everyone should have one.

Retirement

1. Plan on needing approximately your expenses now to live in your retirement.
   • You will likely have fewer expenses but inflation will take its toll.
2. Max out your RRSP and TFSA if you can.
   • The money in your TFSA will grow completely tax-free.
   • You will have to pay taxes when you take money out from your RRSP.
   • Most young people should prioritize their TFSA.
3. Take advantage of your employer’s matching contributions if you can.

Buying a Home

1. Buying a home is one of the best forced-saving methods around.
   • Consider buying a home if you do not have the discipline to invest automatically each month.
   • It often makes sense to buy a home if you plan to live somewhere for a long time.
   • Parents who bought a $30000 home thirty years ago which is worth $170000 today is only a 6% yearly return.
   • Don’t need to pay the mortgage as fast as possible.
     • The mortgage interest is usually lower than the tax bracket deductions of the interest on the house.
     • Do not sacrifice your 10% savings or your retirement savings, or your life insurance payments to pay off your mortgage faster. That would be a mistake.
2. Sometimes it makes sense to rent
   • If the apartment is within your means compared to buying a home.
   • If you are willing to live in a smaller space.
   • If you move often.
   • If you invest the difference in payments.
   • If you value your time and freedom above all else.
3. Real estate can go down in value.
4. Don’t assume you’ll always be able to pay a large mortgage.
   • A fixed-rate mortgage is best for most people.
5. Location, Location, Location
   • You can always renovate the house but you can’t renovate the location.

Savings

1. The three priorities when it comes to saving money
   • 10% get rich fund
   • RRSP or TFSA and/or pension plan
   • Life insurance
2. The four things that come off your income every month
   • 10% get rich fund
   • Retirement
   • Insurance premiums
   • Mortgages.
3. The rest of the money is up to you to handle how you want.
   • The big rocks are taken care of.
   • Budgeting and other tactics are useful but you are almost guaranteed to be wealthy with just doing the big rocks.
4. A dollar saved is 2 dollars earned.
5. Delayed gratification is scarce.
   • Automatically put away some money into an account until you can buy the luxury item.
   • Saving money to buy something gives you time to actually make sure you want what you’re saving to buy.
   • You get a great sense of pride when you save to buy something fully.
6. Live within your means.
7. Don’t carry credit card debt.
8. May be worthwhile to track every penny spent for a month or two.
   • There is no need to try to change your habits when tracking.
   • It will increase awareness.

Emergency Funds

1. Keep a few thousand dollars ready in case of emergency.
   • Try to save 3 to 6 months of living expenses.
2. It can be a good idea to get a line of credit and not use it.
   • It will act as a backup emergency fund for your emergency fund.

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