The Wealthy Barber Returns by David Chilton
Sit back, relax, and enjoy an easy yet impactful read as I discuss one of my favourite books The Wealthy Barber Returns by David Chilton.
The Wealthy Barber Returns
To wrap up the holiday season and start the New Year, I thought I would share a more relaxed, perhaps unusual piece with you all. Over the break, I re-read The Wealthy Barber Returns by David Chilton (yes, the Dragons Den guy), and boy am I ever happy I picked up this book again. I can’t think of any other way to wrap up the year than by exploring Chiton’s timeless lessons and sharing them with you.
Rest assured, to my hungover readers, you can sit back, relax, and enjoy an easy yet impactful read.
In this edition of the Personal Finance Project Newsletter:
“Spending Summaries” a.k.a. Financial Tracking
Chilton’s take on Financial Jargon
A liberating statement - “I can’t afford it”
“Spending Summaries”
“It’s really troubling the number of net-worth statements I see nowadays where an individual or couple has built up a significant RRSP on the Assets side but matched it with an outsized, non-mortgage consumer debt on the Liabilities side”.
In other words, Chilton is saying that strong savings doesn’t inherently mean a strong financial position, if spending and debt expenses are also high. So we need to tame our spending, but how?
Chilton’s point is that by tracking your spending, you will be more aware of exactly where your money is going (sound familiar?). With this awareness, you can pinpoint the expenses that are more or less valuable to you and your life, which he measures by (perhaps jokingly) “joy units”. It’s pretty straightforward… if you’re going to spend your hard-earned money, make it worthwhile! Save what is necessary, then spend on things that make a valuable difference to you. This is in contrast to the typical approach of spending with no awareness and hoping there's some room for savings afterward.
This “efficient spending” mindset is one that I’ve carried for as long as I can remember. A clear and simple example is buying take-out. I love fast-food as much as the next guy, but I don’t value it if I’m eating it too frequently. When I consciously decide that today is the day to muck some McDonalds, I spend and enjoy it thoroughly. When I stumble upon a McDonalds in no deliberate fashion, for the third time this week, the sour-tasting reluctance puts a damper on my savoury burger. Realizing this and then choosing to put the money toward something that gives me more “joy units” keeps my bank account happy and my body healthy.
I’ve been tracking my finances since before I read The Wealthy Barber Returns a couple of years ago, but there's no doubt in my mind that this chapter (ironically titled A Worthwhile Hassle) sunk into my 19-year-old brain. As I re-read it this past week, I found comfort in knowing that others share an understanding of how important spending summaries are. Now, the Financial Tracker is a bit more than just a spending summary, with “Income” and “Savings and Investments” sections included on top of “Expenses”. If you don’t want to track EVERYTHING, take Chiton’s advice and start with tracking just the expenses! Simply acting through the motions will give you insight into your habits, and perhaps you’ll find further value in including Income and Savings in your Financial Tracker.
I don’t LOVE going through my finances a couple of times a month, but it’s been a habit for a while now and I’m pretty quick at it. It’s not hard, to begin with, and it gets even easier over time! It brings me clarity and keeps me committed to spending and savings plans. As for the “hassle” component… it’s not THAT tedious. Download the PFP Financial Tracker - you’ll see.
Financial Jargon and Literacy
The second piece of advice I took from The Wealthy Barber Returns serves as a great reminder to us both.
“You don't have to master the strange jargon of the financial world”, Chilton writes. “There’s no correlation between an individual's vocabulary and his or her money management capabilities”.
Well… there goes my purpose!
Hold up, don’t write me off too quickly. I must clarify that Chilton still stands strongly behind the importance of financial literacy (of course he does, he wrote the book!). His point is that getting caught up in the technicalities of financial products and financial jargon may be more complex than what is truly necessary to achieve financial success.
“Keep it simple and get out of your own way” says Chilton.
Over the past six months, I feel like I’ve been trying to identify this line, that is, trying to define what is important financial literacy and what is rather unimportant jargon. My whole purpose with The PFP is to bring you along my financial journey in a practical way. Practicality surely aligns with the no-jargon-necessary approach that Chilton writes about, so if you feel yourself struggling to follow some of my more complex pieces, try to take a step back and see the bigger picture. You’ll quickly see the important message hidden in the potentially confusing terminology.
An example of this is my pieces on Debt, specifically Amortization and Debt Repayment Decisions. I can’t believe I made over 10 amortization tables in an attempt to explain the concept. You may read through those pieces and chalk them down as unnecessary financial jargon, but pause… somewhere in these pieces is a no-jargon lesson. Sure these are some of my more technical pieces, but the Moving On section of Debt Repayment Decisions wraps things up in a comprehensible and utile way that doesn't require Q-cards, a dictionary, or superhuman memory.
A Simple and Effective Phrase
Without undermining the other advice, I figured I would save the best for last. Frankly, reading this book a couple of years back changed my life, and continues to change the lives of my finance-reading peers. Chiltons simple phrase, “I can’t afford it”, is the single most effective statement to drive down spending and take control of your financial situation.
For the best delivery of this idea, read it from Chilton himself in the chapter titled Four Liberating Words. All I can do is attempt to pass on even just a sliver of his wisdom.
He claims that saying “I can’t afford it” relieves stress and social pressure, helps manage temptation, and ultimately leaves you mentally and financially better off.
He hammers it home by saying,
“Paradoxically, ‘I can’t afford it’ is not a limiting statement, but a liberating one.”
Poof, no longer any need to keep up with the Joneses.
I live by this advice, and I use it often (as do my fellow broke-student peers). Cheap beer, shared rent, and student meals are the embodiment of “I can’t afford it” (… more like “I can’t afford shit”).
Dare I challenge Chilton’s Four Liberating Words that I value so dearly? Without dismantling the power and value of this phrase, let’s take a look at Robert Kiyosaki’s view of this same phrase written in his book Rich Dad Poor Dad.
“Rich dad forbade the words ‘I can’t afford it’… Instead, rich dad required his children to say, ‘How can I afford it?’”
Wow. The contrast couldn’t be any stronger.
Kiyosaki’s stringent stance is built on his no-excuses, mental toughness, anti-laziness view of life. He is appalled by “I can’t afford it” because, unlike Chilton, he thinks it is the most limiting thing that you can speak into existence. It protects you from facing any challenge and defends the laziness that allows you to stay in this weak mindset of not being able to afford what you want (paraphrasing his words, not mine).
Kiyosaki doesn’t stop there, either.
“So how do you beat laziness? The answer is a little greed.”
Two professionals who have both done well for themselves financially and otherwise, but have opposing views on this simple phrase. What can we make from this?
I’ve settled, perhaps only temporarily, on the view that the effectiveness of the phrases “I can’t afford it” and “How can I afford it” is situational. Do you have bad spending habits? Do you often feel the pressure to keep up with your peers? Have you fully considered the value of what it is that you desire (i.e. are you an impulsive spender)? If so, “I can’t afford it” can finally set you in the right direction. On the flip side, if the upfront nature of “How can I afford it” serves as motivation for you to take your wealth generation and growth into your own hands, then use it to your advantage!
If your answer to “How can I afford it” is your credit card, read The Wealthy Barber Returns.
I love both views. Chilton has guided me to look after myself and stay financially grounded. His “I can’t afford it” is realistic since nobody can afford everything, thus you can employ the phrase immediately and experience its effectiveness, proudly taking control of your finances. Kiyosaki has reminded me that my wealth is in my control and that I need not live under a glass ceiling of suppressed expectations. Instead, I can think creatively, using my desires as motivation.
Moreover, maybe these two phrases can be used together. When faced with a questionable spending decision, maybe combining the phrases into “I can’t afford it now, but how can I afford it later?” is exactly what you need to harness Chiltons responsibility and Kiyosaki’s motivation.
Cheers!
To a bright and prosperous 2023! (Financial and otherwise, of course). I love my readers and truly wish a great year upon you all.
I strongly recommend starting off the year by reading The Wealthy Barber Returns. Seriously. I didn’t even mention his famous “Pay Yourself First” stance, which alone provides infinite value. I promise you will not regret this read.
And to end things off, I thought I’d share a helpful reminder from a fellow Laurier student and substacker
who writes .Finance is simple. We choose to make it complicated.
Spend less than you earn. Save the difference.
Avoid fads, crazes, and get-rich-quick schemes.
Buy a diverse, low-cost portfolio.
Very Wealthy Barber-like, Tommy.