The Wealthy Barber Financial Plan

The Wealthy Barber Financial Plan

The Wealthy Barber Financial Plan

One of the most popular and accessible ways to learn about personal finance is through the classic financial novel, “The Wealthy Barber” by Dave Chilton. This financial book weaves financial advice with a fictional story. This book is a fairly simple read and many of the key concepts are just as powerful as when they were first written.

So to save you some time, I’ve compiled the most important concepts in the book. This way, you can learn the most important ideas in just a few minutes! Sounds good, right?

As always, thanks for reading. You can find information about The Friendly Financial Coach, here.

So the plot in the Wealth Barber follows the monthly financial teachings of three young adults by their barber, Roy. Through these lessons, the characters grow to be financially responsible and gain the knowledge to achieve their financial goals.

Roy’s First Lesson – Save 10%

The first big lesson that Roy teaches his students is to save 10% of all your earnings into long-term growth investments; specifically, equity mutual funds. Overtime, these savings will grow exponentially and will provide you with a massive amount of funds for your future.

One of the easiest ways to save this 10% is to “pay yourself first”. This way, you don’t accidentally spend your savings instead of putting it away. The best way to do this is to set-up an automatic withdrawal plan that that invests it for you. After a while, you won’t even notice that these funds are taken out of your account.
As an additional benefit, you’ll take advantage of dollar cost averaging by regularly contributing into an investment. Translated to English, this means that you’ll pay an average price for your investments when you buy it at on a regular monthly or bi-weekly basis. This will protect you from wild investment price swings that have a tendency to occur.

Roy also advises that you should do your research before you buy any mutual fund. You should watch out for high commissions and only choose a fund that has performed well in the past. Usually, you can find this information out by looking at the past performance of the investment and by reading its reviews.

Roy’s Second Lesson – Estate Planning and Insurance

The second lesson that Roy teaches is about protecting your loved ones and resolving your finances after death. This is done by setting up a will and by acquiring the right types of insurance.

The first step is to set-up a will. This is a legal contract that determines how your finances will be settled upon your death. If a will is not in place, the government will disburse your remaining assets and this will likely not be done in a way that you intended.

A will is a very personalized document that needs to be kept up to date with what’s happening in your life. Before you speak with a professional, it’s important that you decide how you want your finances to be divided when you pass away, including who gets your assets and how much they will get. You also get to choose an executor that will take care of your estate; this individual should be trustworthy and not heavily burdened with this responsibility.
The next way to protect your loved ones is by buying suitable insurance. Proper insurance should allow for a winding down of your finances and provide a stream of income to your dependents. However, it’s also important to add that there’s also a chance that you may not need insurance!

The immediate expenses that insurance needs to cover are funeral expenses, debts and income taxes. Unfortunately, it can be a large burden on your dependents if they are forced to pay these expenses, especially when they’re grieving.

Your insurance should also provide an income substitute for your dependents. This extra income will add additional support that will help alleviate expenses and other costs when your family is readjusting to the new and unfortunate situation.

Roy recommends that the best type of insurance to use is term life that offers a simple renewal with no medical conditions. Term insurance is a barebones insurance product that does what it’s supposed to do, pay a lump sum payment upon death. Other insurances are available, but they’re more expensive and have features that you can do yourself. 

To Be Continued!

Well, that’s the first of Roy’s financial lessons and next week we’ll finish the book by looking at RRSPs, Home Ownership and a couple other topics!

Until then, take care and if you have any questions you can contact me at info@ffcoach.ca or 647-289-0012. Also, please sign-up to our beautiful newsletter below!

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