Tuesday, July 8, 2008

Nothing New Under the Sun

I've been going through boxes of books recently and, in one, I found an old book on personal finance that was given to me by a friend. I chose to read through it again before deciding whether to give it away and found a lot of familiar ideas, combined with an 11 page chapter on the American government and a few snicker-inducing comments.

Now, this isn't the book review I promised for July. I can hardly do an official "review" of a book that was written in 1983 and probably hasn't been in print for years. I mean, really, how would you go about getting the book if you were interested in reading it (other than borrowing it from me, I guess)? However, I thought there were some interesting things I'd like to comment on.

The book is "Never Say Budget! How to put money in the bank and still have freedom to spend" and it was written by Mark and JoAnn Skousen. After reading the book I did a Google search on Mark's name and discovered he's a well-known economist and libertarian who is still active. He has a Ph.D. in economics and she was majoring in English and economics when the book was written (back when they were thirtysomethings).

I have to say that I'm surprised because I wasn't tremendously impressed by the book in terms of content, writing or organization. I would say that the gist of the book is well summed up by the 'Seven Golden Rules for Financial Success' listed in Chapter 11. The rules are:
1. Put savings first.
2. Save at least 10% of your income.
3. Make it easy to deposit your savings.
4. Make it difficult to withdraw your savings.
5. Invest your savings wisely.
6. Control your spending.
7. Control your credit.

Did anything there make your jaw drop at first glance? Didn't think so. But there are actually a few unusual aspects to the rules.

First, when he says to put savings first that's exactly what he means. You should put money into savings before you pay your mortgage, or buy food for your kids and you should do it even if you're on welfare. That's pretty hard line.

But when he talks about saving 10%, he's talking about your take home pay, whereas gross pay is what is more often recommended. And when he suggests making it difficult to withdraw your savings, he doesn't mean something like ING that takes a couple of days to transfer back into your bank account (ING Direct didn't exist then anyway). No, he's recommending things like choosing mutual funds with a back end load, the inconvenience of having to auction off antiques or tying up your money in real estate so you'd have to pay commissions! I don't want those kind of costs associated with accessing my money. After all, I'm going to have to take it out eventually in order to use it and I want the most money possible. I just don't want to be able to go to an ATM and yank it all out this second.

"Invest your savings wisely" is a no-brainer. I mean, who sets out to invest unwisely? Finally, I wouldn't have thought of separating credit cards out from the rest of the family spending. It's all money going out; it all needs to be controlled.

The weirdest thing about the book, in my opinion, is that it's ostensibly about saving and controlling your spending without using a traditional budget. But it takes forever to get to the point. As I said earlier, there's 11 pages on the US government, Keynesian economics and how Congress spends money. Then there's a summary of an Andy Rooney segment on how he's spent all the money he's made in his lifetime that probably takes longer to read than it took Andy to tell it. Oh yes, and the text of the Robert Frost poem, "The Road Not Taken". Because that has everything to do with saving money. There's also a chapter on how budgets don't work for Americans, but that the answer is tracking all your expenditures instead. Okay. I just happen to consider tracking my expenses to be pretty much, uh, budgeting.

Finally, we get to all the rules, chapter by chapter. It's really here that I can see the influence of the inflation of the early 80's. There are at least a couple of disparaging comments about passbook savings accounts that 'only' return 5 1/4% (we'd love to see that again) and a mention of .25 candy bars (ditto), along with a recommendation that every investor should have some portion of their portfolio in gold and silver coins.

But there's a lot that sounds like 2008 too. There are discussions on credit cards with high interest rates, debit cards, consolidation loans and bankruptcy. There are the requisite explanations of American retirement savings plans, such as the IRA and Keogh (relatively new at the time the book was written) and dividend reinvestment plans (a la Derek Foster). And the discussion of short-term interest only mortgages and their dangers eerily foreshadowed the current sub-prime mess. From p.143-4: "Yet real estate slumps seldom hit everyone at once. Not being able to make payments or sell your house is a private emergency, not a national one.....those who overextend themselves are likely to lose their homes."

All in all, it was an interesting, if not particularly well-written, book although I didn't end up with much in the way of new information. It seems there truly is nothing new under the sun. So, ultimately, I think it really is one for the give-away box. Now, if you'll excuse me, I'm off to buy a .25 chocolate bar!

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