Bogleheads’ October Project – Chapter 1

October 2, 2006

Hi and welcome to The Bogleheads’ October Project. Each weekday during the month of October, a different personal finance blogger will review a chapter from The Bogleheads’ Guide to Investing. As far as I know, this is the first project of its kind. Book reviews are nothing new to bloggers, but a community-wide, chapter-by-chapter review of one book is something different.

Anyway, I’m excited about this project and I hope it is something you enjoy. If you have done so yet, I encourage you to either purchase a copy The Bogleheads’ Guide to Investing or borrow one from your local library so that you can read along with us. I also encourage you to ask any quesitons you might have as I will try to get the authors to stop by during the month. That said, let’s get started.

Chapter 1 – Choose a Sound Financial Lifestyle

The Bogleheads’ Guide to Investing opens with a chapter on a topic that most people tend to ignore: choosing a sound financial lifestyle. I agree with the authors in that in order for a person to be successful with their finances, they must first choose to live a lifestyle that will allow them to accumulate wealth. The authors do a great job profiling the following three financial lifestyles:

The Borrowers – The “live for today” mentality. I know lots of people in this category. My wife and I were in this category during and right after college. It didn’t take us long to figure out that we needed to make a change.

The Consumers – The “can we afford the payments” mentality. This lifestyle is nearly as dangereous as the Borrowers lifestyle because it means that everything that comes in is likely to go right back out again.

The Keepers – The “it’s not how much we earn but how much we keep” mentality. This is the mentality that builds wealth. And, the really cool thing about this lifestyle is that a person doesn’t have to make a lot of money in order to build wealth.

Take a wild guess as to which mentality is going to build wealth?

Finally, Chapter 1 closes by recommending three steps that people should take BEFORE they start investing.

1. Graduate from the paycheck mentality to the net worth mentality.

2. Pay off credit card and high-interest debts.

3. Establish an emergency fund.

I like the way the authors open The Bogleheads’ Guide to Investing because it is important to make sure everything is in order before a person starts to build wealth.

Join us tomorrow as Nickel of FiveCentNickel will be reviewing Chapter 2 – Start Early and Invest Regularly. Hope to see you there!

13 responses to Bogleheads’ October Project – Chapter 1

  1. I was also impressed by their recommendation to pay off the credit cards before investing. Too many investing books assume that the reader has oodles of money sitting around that they don’t know what to do with, so maybe they should invest it – which isn’t a very likely scenario. This book is going much more for the regular person who doesn’t have much extra, and starts off by trying to help you understand where to get some more extra from.

  2. I was glad to see that my financial style was firmly in the “Keeper” mold, even down to buying a 2-3 year old used car at a good price this past May instead of falling for the new car hype.

    I also liked the emphasis on getting your fundamental finances in order before jumping into investing. I wonder how many people are regretting their decisions to ignore the shakey state of their existing finances and leap into the now-sluggish real estate market?

  3. Hi Everybody:
    We are honored that JLP selected “The Bogleheads’ Guide to Investors” as the first book to be reviewed.

    Mel, Michael and I are keeping our fingers crossed as we watch to see how are book is perceived by this group of talented reviewers.

    Thank you and best wishes.

    Taylor Larimore
    Miami, Florida

  4. Looking forward to the month JLP!

  5. Maaan, I hate that I had to miss out on this one. The book sounds interesting. Can’t wait to read the reviews.

  6. This is good sound advice. It is congruent with everything else I have read on the subject.

  7. Great book, thanks for starting the Bogleheads October project. I also did a Bogleheads Series at Successful Personal Finance. Here’s my post on chapter one.

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