Money management is a topic that does not properly get taught in schools, and is generally left up to families and individuals to learn themselves. Even at home it can be hard to discuss financial literacy, as there can be a taboo around money and investing. Here I have listed the 5 of the best books to increase your financial literacy.
What is Financial Literacy?
Financial literacy is the ability to make sound financial decisions to be able to confidently manage and grow your money.
A person who is financially literate is able to allocate money in various ways, that aren’t limited to expenses and debt. They are able to understand what to look for when obtaining insurance, getting a loan, or applying for a credit card. Additionally the person be able to understand various risks and rewards when looking at various investment products.
Why is Financial Literacy Important?
Financial literacy is important, as it allows people to manage their own money comfortably and with confidence, to achieve their financial goals. Some techniques of financial literacy include:
- Budgeting – How does your money come in, and how does it go out. By understanding budgeting, you can more effectively distribute funds to other purposes
- Emergencies – Do you have enough money if your were to face an emergency at the moment? Emergencies are always unexpected expenses that you generally need to pay for immediately. By having an emergency fund, you are able to know that your covered the next time an accident happens.
- Debt – Most people think of debt as bad (i.e. high cost credit cards, personal loans, etc), however there are sometimes good versions of debt as well (including learning, or additional real estate). If debt is properly managed, it can be a useful tool to generating wealth.
- Retirement – Retirement is probably the number one reason why people seek financial independence. You want to know that when you finish your 9-5 working life, you have a freedom to do whatever you wont. You’re not constrained by the governments pension system.
Financial Literacy Books
So, to help you increase your financial literacy I have listed some books below (disclaimer: amazon affiliate) that have value in providing you with the skills and tools you need to be able to take control of your finances, and eventually experience financial freedom.
Mary Buffet and David Clark’s book Buffettology is a book that describes the methods of value investing used by Warren Buffett. Don’t know who he is? Warren Buffett is one of the most successful value investors in the world. He currently has a net worth of $85.2 billion dollars. The book is written by Mary Buffett who was the ex-wife of Peter Buffett, Warren’s son. Once Mary and Peter got divorced, Mary was able to write about the successful techniques that had made Warren so rich. Buffettology describes:
- the investing strategies of Warren Buffett
- the mathematical tools of the trade for valuing companies
- the types of companies to invest in.
Mary Buffett and David Clark have also created the Buffettology Workbook, which implements a lot of the techniques and skills found in the book.
An excerpt can be found here.
The Intelligent Investor
You can’t mention Buffettology without mentioning The Intelligent Investor written by Benjamin Graham. Benjamin
Graham, the teacher of Warren Buffett, is widely known as the father of value investing. His book, the Intelligent Investor has been refereed to the “stock market bible”. The book combines the teachings of Graham, and encourages people to focus on the intrinsic value of a company, rather than the external market conditions.
Think and Grow Rich
Napoleon Hill’s book Think and Grow Rich provides 6 timeless practical steps applied to those who desire to be rich. The practical steps include:
- Fix a definite amount of money that you would be happy with.
- Determine what you will provide in return for that definite amount of money specified in point 1.
- Develop a plan, including a timescale of when you want to have the money defined.
- Create a definitive plan of how you will achieve the money in that timescale, and start carrying the plan out immediately.
- Writ out a clear description of the above 4 steps.
- Read the description two times each day out aloud , and start to see yourself already in possession of the defined amount of money.
An excerpt can be found here.
Rich Dad Poor Dad
Robert Kiyosaki’s Rich Dad Poor Dad is a great starting point if you are stuck in the 9-5 and need some motivation to change direction in your financial ways. The book goes compares the life of growing up under a “rich dad” and a “poor dad”. The main topics in the book include:
- The Rich Don’t Work for Money
- The Importance of Financial Literacy
- Minding your Own Business
- Taxes and Corporations
- The Rich Invent Money
- The Need to Work to Learn and Not to Work for Money
Get Rich With Dividends
My most recent read is Get Rich with Dividends: A Proven System for Earning Double-Digit Returns (Agora Series), which is a book that looks at how to pick dividend stocks that in 10 years will generate 11% yields and 12% average annual total returns. The books creates a framework that allows investors to achieve higher than average returns, with hardly any maintenance involved.
As a result of reading the book, I have now created a spreadsheet of great companies that:
- have increased their dividend by more than 10% a year for the last 10 years
- pay out less than 70% of their earnings as dividend payments
- currently offer yields of 3% of above.
Additional Financial Literacy Reading List
If none of the above great investment books take your fancy, or if you have already read these, then you search our more investment books on financial literacy. It is important to always be reading different opinions and understanding the viewpoints of other people, to help you gain a better understanding on how the market works.
My current reading list includes the serious of “the little book of …” There are about 7-8 in the series, but these ones here are the first on my reading list:
In addition to the above books, I suggest that you also familiarize yourself with various financial independence groups on both Twitter and Facebook. There’s lots of great people you can follow. Reach out to me on Twitter for some inspiration!