We’d all like to feel better about and more in control of our money, but the most important step you can take to really understand your finances has very little to do with money, it’s entirely mental.
If you, like me, have ever turned to the internet to figure out how money works, you were probably immediately inundated with all sorts of competing advice such as “it’s not how much you make but how much you save” or “everyone can save $1,000 by avoiding lattes for a year,” or “you should invest in penny stocks to instantly become a millionaire,” and other types of questionable advice. It’s hard to make sense of all the information that’s out there if you don’t already know what you want for your money.
We don’t all start out at the same place financially. You may have to pay rent in New York City, make your income freelancing, or have a six figure loan from a liberal arts degree, but the one thing we do have in common is that we can gain control of our finances and be more comfortable thinking about the best ways to use our money by learning the basics of how money works. Here are a few resources I used to understand how to think about my money and what I should be doing with it:
To Understand Saving read The Millionaire Next Door by Thomas Stanley and William Danko
Regardless of where we live or our financial background, we all ultimately want to have enough money to not have to worry about money. The Millionaire Next Door introduces the reader to average people with regular jobs who figured out how to make their money work for them without having trust funds or superhuman abilities, but by first changing how they thought about their money and then how they used it. Reading about ordinary janitors and teachers who became financially independent without winning the lottery, inheriting money from mommy and daddy, or eating ramen noodles everyday for ten years helped me clear the mental hurdle that wealth was reserved only for certain people and that being financially savvy required some sort of superhuman intelligence.
To Understand Spending read I Will Teach You to Be Rich by Ramit Sethi
If you want to live your life without obsessing about money all the time, I Will Teach You to Be Rich is a necessary and vital guide. We all have different goals. I for example, don’t think life is worth living if I can’t have coffee as many times as I want, but I also don’t believe in buying expensive clothes. You might be partial to an Equinox membership but hate spending money on travel. This book helps you decide what’s important to you and then set up an automatic financial plan to help you spend money on things you love and cut down on things you don’t care about. I Will Teach You to Be Rich basically sets up the foundation of your money skills by making you think about what you want to use your money for, and what you ultimately want to achieve.
To Understand Investing: If You Can by William Bernstein
This is technically not a book but a free pdf (by the founder of Efficient Frontier Advisors) that provides young adults with an easy way to understand investing. Investing seems like a complex, scary world, but Bernstein sets up the basics of investing in an easy to understand manner. Even more fun, he introduces a week-by-week guide through all the books he used to understand money and if you read The Millionaire Next Door you’ll already be one step ahead of Bernstein’s program.
Knowing how money works is vital to helping us feel better and more confident about tackling our finances. Books on money might not be the obvious choice, but they’re the fastest way to learn from the best, set up a solid financial foundation, and also roll your eyes the next time you come across an article advising you to save money by skipping your latte.
Etinosa Agbonlahor lives in New York City and tweets here.