By JLP | June 30, 2010
I came back from vacation to find a copy of Jason Kelly‘s Financially Stupid People Are Everywhere: Don’t Be One Of Them* waiting in my stack of mail. I opened it and started reading. I liked what I read. In fact, one part of his book inspired this post.
The book opens with a frank discussion of how the U.S. got into the financial mess of the last few years. His thoughts were similar to what you’ve read here over the last few years. There was plenty of blame to go around but that the bottom line rested with financially stupid people making bad choices.
From the introduction, Kelly moves on to discuss The First Rule of Finance, which is:
Never spend more than 80% of your take home pay.
I asked Kelly whether or not the 20% saved included 401(k) contributions. This was his reply:
On the 20% I suggest saving as part of the First Rule of Finance, a person could technically meet it by putting some of their money into a retirement plan and considering that as part of their 20%. The whole point of the rule, though, is to avoid debt and I don’t think retirement money helps people do that through most of their lives. Nobody relies on their 401(k) for normal living expenses.
That’s why I say to spend no more than 80% of take-home pay. Then, a person sets aside 20% of their take in a way that can be used for normal living expenses. That money can be used for big purchases or investments or whatever. That they’re also putting more away in a retirement account is so much the better.
Is it aggressive? Yes, and it should be. I’ve found that most people, once they adjust to a different income level, get used to it. They stop missing the % they socked away.
Being able to save 20% of your take home pay requires some self-discipline and might not seem feasible with other financial responsibilities that most people have like credit card payments and car notes. That’s where “The Three Cs” discussed in Chapter 2 enter the picture, “The Three Cs” are:
• Credit cards: NEVER carry a balance
• Cars: Don’t finance. Pay cash for your vehicles
• Castles: Put at least 20 percent down on your house, and keep the mortgage payment below 40 percent of your take-home pay.
Chapters 3 through 6 move into politics by showing how corporations control the type of government we receive (he doesn’t have much good to say about Goldman Sachs). Although Kelly is quick to spread the blame among both parties, he left out two important players in this politics game: lawyers and unions. Kelly focused almost entirely on the role that corporations play in politics via lobbying and campaign contributions. This is unfortunate because there’s no denying that lawyers have played a significant role in driving up the cost of health care and that unions asked for special exceptions during the health care debate. Also, in his discussion of health care, he makes it seem like some form of national health care is the answer to our problems. That a government-run system would somehow be cheaper.
In his discussion of oil, he stresses the benefits of electric vehicles but fails to discuss the costs involved in running them (electricity isn’t free) and the stress that charging such vehicles could put on the power grid.
Despite what I consider short-comings in his discussion of politics, I did understand his message that…
NOBODY (not government, politicians, or corporations) cares about your wellbeing but YOU!
The sooner we realize this and take control of our own finances, the better off we are.
Overall, a good book. It’s easy-to-read and I do think—despite the politics—that people would benefit from this book.