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The Simple Dollar

Book review: 'Smart Is the New Rich'

Every Sunday, The Simple Dollar reviews a personal finance book or other book of interest.

By Guest blogger / December 19, 2010

Smart is the New Rich: If You Can't Afford It, Put it Down, by Christine Romans, October 2010, Wiley, John & Sons, Incorporated, 320pp.

Wiley, John & Sons, Incorporated

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Every Sunday, The Simple Dollar reviews a personal finance book or other book of interest.

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I’ll admit it – I’ve only seen the show Your $$$$$ on CNN once. I don’t watch much cable news – or broadcast television at all – so I don’t have much opportunity to follow programs like that one.

Instead, I came across this book at the library, not knowing the author, Christine Romans, from anything. I checked it out for one reason: it manages to ride the fine line between intelligent personal finance writing and easy-to-read personal finance writing.

It is a fine line, because it’s easy, when you know about finance, to write about it in such a way that’s not easily accessible to the layperson who just wants to make ends meet. At the same time, you can also write about it in such a way that you’re not really saying something of interest to anyone.

It’s a fine line that I try constantly to achieve, and I enjoy it when I find a book that manages to do it. Smart Is the New Rich seems to do that quite well.

1 | Reset, Repair, Recover
Money can’t buy you happiness, but like it or not, it is the engine upon which most material transactions occur. The smarter you get about these transactions, the more likely it is that you’ll be able to have the resources for the things you want in life. The best way to get started is to have a heart-to-heart with your spouse and with yourself. Ask yourself if your money is actually lasting through the month and whether your account balances are actually improving each month (on average). Are you living in housing that’s too expensive (more than a third of your income)? Romans offers up a bevy of such questions.

2 | Spending Your $$$$$
The real lesson of this chapter, I think, is that honesty with one’s self is vital. If you can’t honestly answer the question of whether or not you can actually afford to buy a particular item, it’s going to be very difficult for you to spend less money. Simply put, if you don’t need it, don’t buy it, and if you can’t afford it, put it down. Another key point is the value of saving first rather than last – the first thing you should do with your paycheck is to put some of it in a savings account that you can’t easily touch. I prefer using a completely separate bank for it.

3 | Your Job
I have one minor problem with this book and it begins to crop up here: politics. Romans often tries to slip in political perspectives throughout the book, never really offering enough to give a coherent political perspective, but just enough to taint the waters. Here, the book discusses the job market, pointing out the key fact that if you’re out of work, you need to work hard on retaining your skills and connections. On the flip side, if you’re still employed, future success hinges greatly on results.

4 | Debt
Here, Romans introduces the usual “good debt versus bad debt” dichotomy in which some debt is identified as being “good” (mortgages, student loans) and others are “bad” (particularly credit card debt). I tend to think that even “good” debt isn’t all that good and one of my current financial goals is to move as close to debt freedom as possible, simply because of the oppressive nature of debt paymetns constantly draining away your income.

5 | Credit Cards
Clearly, credit cards fall into the “bad” part of that “good versus bad” dichotomy. It’s key to remember that most Americans pay their credit card bills on time, but some people are unable to cope. Those who cannot need to take radical action to move into a situation where the credit card debts are under control. Another key factor related to credit cards is to make sure that your personal credit is under control – Romans points readers to the the FTC site for getting your credit report from the federal government.

6 | Home Sweet Home
The key thing to remember is that you begin to make money the day you buy your home. You’re now able to have a better commute. You’re more able to cook meals at home and to entertain at home. Don’t focus on “turning” a big profit on your home because, frankly, it’s not realistic. The idea that you can turn a huge profit on your home comes from the housing bubble, which was a period of unreality that we’re still reeling from.