Monday, February 13, 2012

The Wealthy Barber Returns, But Should He Have?

David Chilton has returned with a sequel to his best selling personal finance novel the Wealthy Barber. The original Wealthy Barber was one of the first of its kind, telling the story of how a barber (seemingly low-income earner) ends up being financially secure by following a down to earth financial plan. The barber teaches his clients about how he ended up being in a strong financial position through diligent saving and living within ones means.

In David Chilton's sequel he no longer uses the fictional characters in his original book, but uses a more casual approach discussing personal finance, as if he were chatting to you in your living room. The good news is you can just close the book when you don't want to hear from him anymore, since it would be awkward to try to kick him out.

Unfortunately, there isn't a lot of new information in this sequel. He still preaches a lot of the maxims you'll see in other personal finance books (i.e. The Automatic Millionare by Bach) such as: pay yourself first, live within your means, credit is a dangerous thing when not used properly, don't try to keep up with the jones' and always save for a rainy day/retirement. There are a couple tidbits of wisdom and it is a very quick read with very short paragraphs and chapters.

One insightful thing Chilton mentions is how income is sometimes confused with wealth. Having a high income is great but if you also live lavishly it can be difficult to save. Plus the income won't be there indefinitely especially if you plan to retire (we can't all work forever) or if you lose your job. Wealth on the other hand is something that you build over time by diligently saving and making good investments decisions. The idea of wealth is having your money work for you, the idea of income is working for money. There's a big difference and it's important not to get the two confused. I would highly recommend reading the original Wealthy Barber but would suggest passing on the the sequel.

Monday, February 6, 2012

Learn From Canada's Foremost Capatilist

The host of CBC's Dragon's Den, Kevin O'Learly has come out with an autobiography entitled "The Cold Hard Truth". For those of you who have never watched the show, it would be the American Idol of venture capitalism. Keven O'Learly is one of 5 panelists who decide whether a new venture is worth staking their own money on. All the panelists have entrepreneurial experience, building up multi-million dollar companies. When a prospective start-up company pitches their idea, they are hit with a barrage of hard to answer business finance questions from the "Dragons". There is no doubt that the "Dragons" know business and that they've gained knowledge from where it counts, main street.

So what can we learn from O'Leary? O'Leary built his fortune on a variety of software products. He himself was never a computer geek, but was the marketer and business force behind the products. His first venture was selling printer software his business partner developed. They snagged a huge client, Hewlitt Packard, and with that deal they were earning royalties on every printer sold. Later he developed and marketed educational software packages.

Throughout the book he preaches the message that the only thing that really matters (when it comes to business) is money. One story that comes to mind is when O'Leary is trying to get their educational software on the shelves at Wal-Mart. Wal-Mart is absolutely ruthless when it comes to giving up retail space. Being the best low-cost provider of consumer goods in the world, everything comes down to the dollars and cents.

When O'Leary met with a Wal-Mart executive to talk about putting their software on Wal-Mart shelves, the executive told him that he would put his product on the shelf if they could sell it for $30 a unit. O'Leary said they currently sold it for $60 and that it wasn't possible to cut the price so low. The Wal-Mart executive said it was going to either be tube socks or his software sitting on his shelves and that every inche of shelf space was precious. If he wasn't willing to cut the cost then his software wouldn't enter their stores and the meeting would be over. O'Leary and his team ended up developing a version that could sell for the price Wal-Mart demanded and they ended up selling millions of units.

Business is a tough environment and it takes a thick skin to thrive in it. O'Leary had been very successful at it and has a keen eye for value. He makes an important point that money although crucial in buisiness, isn't everything in life and that money can really only buy you two things. The first thing is the freedom to do what you want and never be bossed around. The second thing that money can bring is the ability to help others. Other than that money can't replace the things that bring us the most joy in life such as good health, friends & family, and valuable experiences. The cold hard truth is that we all have to make a living somehow and that the reality is money is a huge driving force in the decisions we make. We need to seriously contemplate what money can and can't do for us and know when to choose between our time, ambition and values. The Cold Hard Truth was really entertaining and definitely worth borrowing from your local library.