From Here to Financial Happiness

Reading Jonathan Clements’ book From Here to Financial Happiness is like having a chat with a wise financial advisor. He covers 77 personal finance topics, most in just a page or two. While it’s aimed at Americans, almost all its lessons are relevant to Canadians.

Much of what matters in personal finance is making decisions that help you get what you want out of life. Clements covers these topics as well as the usual advice to spend less than you earn and avoid debt. One example is the third lesson where he asks the reader to “dream a little” and list the things you’d do if money were no object. Later the reader is led through the steps to make some of these dreams a reality. It isn’t until the end of the book that we get into picking investments.

This book is wide-ranging and resists any further attempt to summarize it. So, I’ll use the rest of this review to point out a few parts that caught my attention; they aren’t meant to be a representative sample of the contents.

“You could carry a credit card balance – or you could toss dollar bills out the window. Same thing.” The difference in Canada is that throwing our loonies around might hurt somebody.

Financial blogs are filled with debates about which debts to pay off first. Clements suggests a compromise. “Focus on paying off the debt with the highest interest rate.” “If you have loans that are almost paid off – accelerate payments on these debts ... [to] improve your cash flow.”

Clements lists a dozen investment products and strategies to avoid, and then lists several others that almost made the list. Basically, you should avoid investing in anything that seems to remotest bit exciting.

“Why do many families fail to save? ... often they simply can’t, because they have boxed themselves in with a litany of monthly fixed costs, everything from mortgage payments to insurance premiums to recurring fees for phone, internet, cable, music streaming, and more.”

Clements includes self-reflection as one of the attributes you need to be able to save money. When we’re young, we think buying things will make us happy. We learn the hard way that we’re wrong about this and we look for happiness elsewhere.

Many people think they’ve wasted money if they buy insurance they end up not needing. This is the wrong way to think about insurance. “At its heart, insurance is about pooling risk.” “Those who suffer misfortune receive money from the pool. The rest of us pay our premiums and get nothing in return, which is what we want, because it’s a sign that life is good.” “Because insurance will – we hope – be a money loser, we want to purchase only the policies that are absolutely necessary.” You don’t need insurance for any risks you can handle on your own.

As you become wealthier, you may cut back on many types of insurance. But “it should make you more anxious to get umbrella-liability insurance. Why? Your growing wealth may make you a more attractive target for the litigious.”

“Basements are badly curated museums dedicated to the purchases we regret but can’t yet bring ourselves to trash.”

“Tempted to sell stocks and buy rental real estate? Remember, stocks don’t call at 2 a.m. complaining that the toilet’s clogged.”

“Want to hurt your happiness? Buy a big house involving lots of upkeep and a long commute.”

“There are those who think they’re investment geniuses – and then there are those smart enough to index.”

Clements says contributing to a work savings plan that has an employer matching contribution is a higher priority than paying off credit cards. Funding the U.S. equivalent to a self-directed RRSP comes next. But he says to pay down your mortgage before buying any bonds.

“If your brokerage firm or mutual fund company provides cost basis information, there is no reason to keep anything but the latest statement.” I find that cost basis information from brokerages is often wrong. I prefer to keep electronic copies of old statements just in case I need them when filing taxes.

“A fatter bank account won’t necessarily make us happier, but an empty one will likely make us miserable.”

Overall, I found this book a useful check on the state of my personal finances. Younger readers will find it a good guide to creating the future they want, and older readers will find it helpful to see what they’ve overlooked. It will definitely make you think about your life.