I’m celebrating my 10th anniversary of the founding of Lexington Wealth Management in May! As a self-employed person, I’m always looking for ways to make my life easier or show me ways to do things a little better. Self-employed people face unique challenges, and money management is definitely one of them. So with that in mind, I thought I would review a book that helped me.
I read The Money Book a couple of years ago. I was astonished at how simple some of the ideas were in this book. I was also surprised that it taught me a few things about running my business, paying taxes and saving for retirement. I implemented the strategies, particularly with the estimated taxes and saved myself a lot of heartache. So even if you are considered an expert with managing money, or a very successful entrepreneur, you will learn from this book.
Being Straight With Yourself
The first part of the book really speaks to self-employed individuals that don’t have a good personal finance background. It discussed how critical it is to establish a large emergency fund. People that work for themselves should take this step seriously. I recommend having at least 6 months of expenses in an emergency account. Due to the nature of self-employment and salary variations, you probably need to have about a year of expenses saved. Another point that is stressed is having a goal for your money. All of these goals should have a separate account allocated. In addition, this sections discusses the crushing misery of debt and how important it is to be debt free.
The Basics of the System
The book focuses on goal oriented savings. In addition, you are to establish and separate three distinct accounts; emergency fund, taxes and retirement. What the authors call the Holy Trinity of Savings. Each of these accounts are to be funded every single paycheck. Percentages are used instead of dollar amounts. This makes sense because most self-employed and freelancers have varying sizes of paychecks. When you get a small check the percentage stays the same, but the dollar amount decreases, and vice versa when you have a larger paycheck. The authors make the point that even if you fudge on the retirement and emergency fund, you cannot mess with the tax account. It has to be funded every check, so you can pay those quarterly taxes. Once you have an emergency fund at the level you wish, you can then use that percentage to add to your retirement account or other goals.
Growing the Plan and Living The Dream
As your income increases, you can begin to increase your savings or the percentages toward other goals you have established. Your percentage for taxes might increase due to your business success. Once you have established the emergency fund and paying your taxes on time, you can now divert some percentage to other goals. You may want to allocate a certain percentage to college savings or a vacation home. The trick is to continue with percentages.
Is the Money Book worth reading?
Let’s put it this way. I don’t remember what I paid for the book when I bought it, but I would shell out a hundred times that amount again. The information I learned about the Trilogy of Accounts was worth its weight in gold! Is the Money Book worth reading? Definitely. It is one of a handful of books that changed my life in a positive way. If your are self-employed or a freelancer, this is a must read. You’ll be glad you did.