I just finished reading Common Sense Economics: What Everyone Should Know About Wealth and Prosperity. This book is an introduction to the key fundamentals of Economics, as well as a bit of Personal Finance. It’s a relatively small book too, one you can easily read in a day.

Common Sense Economics is a great book to read if you are new to Economics, haven’t studied Economics for a long time, or if you are currently clueless about your money and/or the Economy.

This book is divided into three parts. The first two deal with Economics and Government. The last part deals with Personal Finance. The inclusion of the Personal Finance part can either make this book the perfect fit for you or it may leave you wanting more. If your personal financial life is already under control, you won’t gain anything from this third part. If you have yet to take control of that part of your life, this chapter provides you an excellent outline for how to get started.

Some highlights from the book:

The reality of life on our planet is that productive resources are limited, while the human desire for goods and services is virtually unlimited. Because there is “no free lunch,” we must sacrifice something we value in order to get something else.

Politicians often speak of “free education,” “free medical care,” or “free housing.” This terminology is deceptive. These things are not free. Scarce resources are required to produce each of them. Governments may be able to shift costs, but they cannot avoid them.

Nearly all choices are made at the margin. That means that they almost always involve additions to, or subtractions from, current conditions, rather than “all-or-nothing” decisions. The word “additional” is a substitute for “marginal.” We don’t make “all-or-nothing” decisions, such as choosing between eating or wearing clothes—dining in the nude so that we can afford food.

The foundation of trade is mutual gain. The motivation for trade is summed up in the statement: “If you do something good for me, I will do something good for you.” Trade is productive because it permits each of the trading partners to get more of what he or she wants.

An increase in government transfers will reduce the incentive of both the taxpayer-donor and the transfer recipient to earn income. Economic growth will thereby be retarded.

Competition for transfers will erode most of the long-term gain of the intended beneficiaries.

Programs that protect potential recipients against adversity arising from their imprudent decisions encourage them to make choices that increase the likelihood of the adversity.

Providing others with goods and services that are highly valued compared to their cost is the key to financial success.

I really enjoyed this book and highly recommend it. I borrowed it from the library, but I intend to purchase my own copy soon. Both for future reference and so I can loan it to friends. It makes for a great Economics primer and the section on Governments’ role in Economics is excellent…and quite timely given the current insanity in our nation’s bailout-addicted political climate.

By Eden, Mon 29 Dec 2008, Categories: Books

Review of Your Money or Your Life, by Joe Dominguez and Vicki Robin

Book’s website – www.yourmoneyoryourlife.org

Amazon.com link – Your Money or Your Life: Transforming Your Relationship with Money and Achieving Financial Independence

I actually started reading this book around the start of the year, but stopped after a couple of chapters because I found it too dull. Thanks to Trent at The Simple Dollar running an online book club with this book I decided to try reading it again. I think it’s true that this book gets off to a slow start, but I also think I gave up too soon before because I had no problem reading through the whole book this time.

Bottom line, this is a must-read personal finance book no matter where you are currently with your money. If you want to know more before you read it, I’ll cover the main themes of the book below.

Are you making a living or making a dying?
The first important theme deals with how we trade our life energy for money and figuring out just what it is we do with that money and why. Do you work 50-60 hours a week just to keep up with the bills and have money to blow on having ‘fun’ on the weekend? Do you know how many hours of your life you are actually giving up for the ‘stuff’ you own? Do you know how much you actually earn per hour at your job? This section shows you how to calculate your real hourly wage, which is likely much lower than you think, and how to start tracking every penny you spend and creating a budget. This section is laying the foundation for a sound financial plan, however the process of determining your real hourly wage and figuring out how many hours of you life you trade for ‘stuff’ was eye-opening for me.

How much is enough? Finding fulfillment.
The next big theme is figuring out what is ‘enough’ in your life. What do you spend money on that provides fulfillment and what do you spend money on that works against finding fulfillment? Not only does this apply to how you spend your money, but also to how you spend your time (life energy). Is your job fulfilling? Do you have to spend money and time doing things for your job that you wouldn’t do otherwise? These are important questions to answer because they lead to the ultimate question of determining what you should be doing to make a living and how you need to think differently about it.

Tracking your progress
You could do this on a computer, you could do this on a paper wall chart (as the book suggests), but the key is to somehow track your progress and keep a visual reminder. I use a number of things to track my progress- this website, an Excel spreadsheet, Quicken, and a whiteboard on my refrigerator with my current total debt and how much I have paid down on it since starting my financial turnaround. Whatever you do, do something and make it easy to see on a daily basis. Not only is this an empowering step on it’s own, but it leads to the next great theme, the Crossover Point.

The Crossover Point
This is the most exciting part of the book. If you are tracking your income and expenses like the previous section told you to do, you will be able to add a third component to your chart, which is income from investing or any source of passive income. The goal here is to add your passive income to the income and expense chart (it is likely a tiny number at the bottom of the chart now), but to project it out into the future and find a point where that passive income number crosses over your expense number. This is the crossover point, the point at which you no longer need to go out and earn an ‘active’ income. If you are anything like me, that crossover point is a very long way off right now, but it is the ultimate goal of taking control of your money and finding financial freedom.

Summary
The book isn’t perfect, and I would guess you could cut about 50 pages out to make it really great, but the overall message was truly life-changing for me. I highly recommend it for anyone who thinks that maybe they could be doing better with balancing money and life.

By Eden, Mon 12 Nov 2007, 5 Comments, Categories: Books, Finance