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Wednesday, October 13, 2010

Review: Psych Yourself Rich

(Disclaimer: I got my Kindle copy of the book for free)
In September, someone asked me for basic financial advice: should she contribute to an after-tax Roth IRA, or should she give the money to her foundation which would be matched by her generous employer? I gave what I thought was a cogent answer at that time, but afterwards realized that I had made a fundamental error. I neglected to ask if the person had a 6 month cushion of savings and living expenses, and if not should have recommend that course of action. Fortunately, I was dealing with an intelligent and responsible person so I think that the assumption was valid.

Nevertheless, that's the kind of thing that someone like me tends to overlook. I regularly work with and talk to people who have no debt (other than a mortgage), have financial dilemmas such as the one described above, and who have no problem functioning day to day, that I forget that there's a whole discipline of financial planning that deals with getting motivated to even get to that basic level of financial discipline! Psych Yourself Rich: Get the Mindset and Discipline You Need to Build Your Financial Life belongs to this class of books. You will most likely find it uninteresting if you have no problems dealing with cash flow and don't have any credit card debt. If that's your case, the books on asset allocation, etc., will be far more interesting to you.

A great section of the book is aimed at persuading the reader to behave like an adult with regards to finances. The author was the host of Bank of Mom and Dad, a reality TV show about the debt ridden, which explains why her case studies are so pathetic. Most of my friends who ask me for financial advice would never be interesting case studies on her show. Some of these people would get bills in the mill and promptly file it away rather than actually pay it.

I do have her issues with some of her advice. For instance, studies show that looking at your portfolio more often actually reduces your portfolio performance (because you're usually tempted to do something foolish with your money). Examining it more than once a year is proabably overkill for the kind of people who needs Torabi's advice. Then there's the section advocating that you start working a second job part time. I think it's far more important to be really good at your day job than to work a second job part time, unless your day job is a completely uninteresting profession to you, in which case your biggest goal should be to get a day job that's interesting to you and that rewards being good at it. One of her alternative income plans for instance is to become a travel blogger. I have a relatively high page rank web site, and I blog about my travels, but I can assure you that the kind of money that generates is in the pennies per day. The big money posts are the ones about technology, and my guess is someone who can be a credible blogger about technology is definitely someone who really would get a better pay off from being better at his day job than at blogging. She also encourages some risky get-rich-quick schemes like Private Equity or listening to Jim Cramer (whom she used to work for).

All in all, I think the book could be a much needed read for some people. Unfortunately, my guess is the kind of people who need the advice in this book won't read it (just as the people who need the most help in classes are the least likely to actually show up for them). If you're anyone else, this book is not useful, and some of the advice is actually harmful. I therefore cannot recommend this book.


mashi said...

Hi Piaw,

Interesting review. Then what would you recommend? I've read a little bit of "Rich dad, poor dad" but will be happy if you can recommend something good.

Girl from Alice Springs trip

Piaw Na said...

Have you tried I will teach you to be rich? The web-site at least isn't full of idiocy.