Twenty-two years after "The Wealthy Barber" was launched and subsequently sold over 2 million copies, its amiable author is back. Dave Chilton turns 50 on Oct. 27, yet his enthusiasm for sharing financial wisdom is as strong as ever.
Chilton has grown exceptionally frustrated over the past 10 years by inadequate savings, out-of-control spending, short-sighted borrowing and unrealistic investing.
His timely rescue plan is "The Wealthy Barber Returns," a collection of 54 bite-size chapters that engage readers with concise money lessons wrapped in humour and anecdotes. Most chapters are only two to three pages long, which helps both young and old audiences quickly absorb and retain key messages.
Here's just a sample of the hundreds of practical insights in Chilton's new book:
Money Lesson No. 1: Live within your means.
Chilton warns that many consumers are overly materialistic and self-indulgent. When people insist on having "the newer, fancier, bigger models" of what they already own or covet what others have, they become trapped in a cycle where more is never enough. Many consumers can no longer distinguish their desires for instant gratification from basic human needs like food, shelter and clothing.
Tip: Practice saying "I can't afford it."
Money Lesson No. 2: Pay yourself first.
One mantra repeated throughout both the original bestseller and "The Wealthy Barber Returns" is the sage advice to set aside 10 to 15 per cent of your pre-retirement gross earnings in forced savings. As Chilton explains, even top wage earners need to save at least that percentage because bad investments, divorce and job loss can lead to severe financial stress.
Tip: Continue saving even after your mortgage is paid.
Money Lesson No. 3: Control spending.
Chilton also wants consumers to spend more wisely and counsels that controlling expenditures is easier if you know where your money is going in the first place. Canadians can use online tools, credit card statements and bank transaction summaries to identify items that represent their highest costs. For example, most people are amazed by how much they spend on their automobiles, dining out and little things.
Tip: Relatively small spending cuts can dramatically increase your savings.
Money Lesson No. 4: Limit borrowing.
Today's easy credit and enticingly low interest rates frustrate the Wealthy Barber the most. Many Canadians are saving, but then use their lines of credit to overspend on luxuries simply because they have access to credit. Chilton resolves that paradox by proposing that affordable debt must be based on net income after taxes and savings have been deducted, and not gross earnings.
Tip: Be debt-free by retirement.
Money Lesson No. 5: Invest prudently.
Chilton concedes that predicting mutual fund or stock winners based on past performance doesn't work. Instead, "The Wealthy Barber Returns" provides easy-to-understand scenarios that show how readers can earn superior returns just by matching average market performance. Other examples illustrate how compounding can turn so-called average investments into hundreds of thousands of dollars in higher returns.
Tip: Have realistic expectations about investing.
Money Lesson No. 6: Be happy while saving.
Early in the book, Chilton exposes the harmful misconception that "saving for the future requires sacrifices today that lessen people's enjoyment of life." The author points out that the real villains driving stress and unhappiness are unfettered spending and unmanageable debt. Perhaps Chilton's most ironic insight into human nature is that people who crave the most are also the quickest to grow bored with their new possessions.
Tip: Cherish what you have while you save for the future.
Money lesson No. 7: Take a long-term view.
"The Wealthy Barber Returns" coaches readers to achieve a long-term perspective by focusing on where they want to end up in 10 to 15 years, which is about how long Chilton thinks current global financial problems will last. During that time frame, maximizing Registered Retirement Savings Plan (RRSP) contributions remains one solid approach. People living in homes they can't afford also have the most at risk so they may need to consider downsizing.
Tip: Pay down debt now, especially if you're vulnerable to rising interest rates.