Michael Masterson, Automatic Wealth for Grads… And Anyone Else Just Starting Out (Hoboken, NJ: John Wiley & Sons, Inc., 2006), 238pp. 5/5
Essential financial advice – for everyone.
Do you wish you could be rich? Of course you do. Everyone does. Automatic Wealth for Grads is nine chapters of readable and homely financial advice that will change your life for the better if you haven’t learned its lessons already (and you probably haven’t).
I cannot stress highly enough the importance of Masterson’s basic lesson: always spend less than you earn, and invest the surplus wisely. In mid–2004, when I was still a “poor student,” I had saved $8,000 in cash, squirrelled away in a high-interest deposit at around 6%p.a. At age 23, my money was already making me more money; about $40 a month. If I had that money right now, in addition to other money I’ve come by since, I’d have the deposit for a loan on a very modest studio apartment. But I blew it. I used some of it to pay off credit card debt, and then continued to spend on the credit card. I then spent $4,000 on an overpriced Powerbook G4, and thousands more moving to Japan. By November 2005, I was $11,300 in debt. In two years, my net worth had fallen 241 percent! And not because I couldn’t control my spending. No, that’s something I’m very good at. But because I was foolish enough to believe that if I spent beyond my means while young, I’d make loads of cash in the future and be able to pay it all back easily.
It’s not easy. At 17%p.a., $11,300 in credit card debt will cost you almost $200/month in interest. You pay back $100/week, and you’ll still only be $200 ahead at the end of the month. Maybe if you were earning around $40,000 a year after tax, as I was in Japan, you can save $1,000 a month, but even then, it’ll still take over a year to pay the debt off, taking interest into account. I’ll get back to zero debt some-time around July 2007. In the meantime: PAIN. Spending more than you earn is madness. Don’t go there. Ever.
Maybe it sounds obvious, but most people never really get the lesson that the money you save makes more money for you. Even if you think you get it, you need to beat yourself around the head with the idea to make sure you don’t forget it like I did.
Quite aside from that, though, Masterson has very important advice for graduates in another area, and that’s the enterprise of finding work. Unless you’ve been lucky enough to plan ahead for your employment future and have secured a job with good advancement and earnings growth prospects by joining a graduate program, you’re likely to find deciding on a job you like, and getting it, is a difficult thing. Masterson proposes that you treat job-hunting as a direct marketing exercise. The idea is that you’re selling yourself, as a product, to a customer (your prospective employer) who has particular needs he wants fulfilled, needs that you can answer. And it’s an idea that will transform and focus the way you present yourself. This was the point that caught my eye when I was leafing through Automatic Wealth for Grads, and the one that brought me back to buy it even when I ought to have put the purchase price in the bank. But I’m betting that $35.95 is going to make me hundreds of thousands of dollars in the long run.
Masterson caps the book off with more home-style wisdom on the subject of “Living Rich, Starting Tomorrow.” His simple, sound advice for living well, indeed, for living like a billionaire, is to keep one’s demands modest, and to luxuriate in and be grateful for the fruits of your own prudent financial management. When I was just starting my PhD, a colleague (now Dr Lachlan Macdowall) giving a lecture on mass consumption told a class I was tutoring this: “the Coke you buy is the same as what a millionaire buys. More money won’t buy you a better Coke.” And he was right. Masterson repeats this insight: “The way you dress, the way you eat and drink–and even the home you live in–can be as good as any billionaire’s.” And he’s right, too. In a way, Automatic Wealth for Grads is about learning how to make use of the opportunities available in a capitalist society to build wealth through hard, smart work and sound financial management. But it also reminds us that because capitalism optimises the use of resources and stimulates human enterprise, it has led to a situation where the modestly wealthy now live better than all the kings of yesterday. By simply living below your means, for your whole life, you can build wealth enough to enjoy the finest luxuries in human history, in the ease of an early retirement.
Start heading there now. Start by reading this book.
(Those who want to save themselves A$35.90 might prefer to borrow Automatic Wealth for Grads from a library, or read a concise version of the same advice from John J. Brennan, chairman of Vanguard).
