Yesterday I drew the winner of the Middle Class Millionaire, and it’s L Bryant!  Please contact me at livingalmost at gmail.com!

Okay, time for another book review and free book giveaway drawing. Same rules apply, leave a comment by Wednesday 9 pm 10/8/08 for a chance to win, and I’ll draw the winner next Thursday morning. This time, a totally new, just published book called How to be the Family CFO, by Kim Snider.  This book was just released yesterday 10/1/08, however I got an advanced edition of it for review.

Kim Snider is an investment broker who made and lost a ton of money.  She made a ton of money and still went dead broke because she trusted someone else instead of managing her money herself.  She shares with us her secrets for managing a family’s finances.  She says being accountable is the best feeling in the world.  But let’s review the book.

Section 1: Being the Family CFO

This section compromises of chapters 1 and 2.  It asks the question what is a family CFP and why you should become a family CFO.  The answer is you need to be responsible for your money.  There are lot of people who feel it’s above their heads.  But there is nothing more important than understanding your money.

Most people know that mutual funds are good, and index funds are better. That index funds consistently outperform actively managed funds.  If this is true, then how are actively managed funds still being sold?  The truth is people don’t want to get involved with their finances, “it’s too hard”, and they prefer to allow someone else to manage their money.  But what happens when something goes wrong?

Section 2: Planning Prudently

This section covers chapters 3, 4, and 5.  Chapter 3 talks about creating personal financial statements.  These financial statements should consist of a income statement and balance sheet.  The book gives examples of income statements and balance sheets.  The income statement shows how much income comes in and how much income goes out and where it goes to.  The balance sheet is a fancy way of tracking your net worth.  It tracks your assets and liabilities.

Chapter 4 discusses having a plan but not overplanning. The author says writing a plan forces you to look at all of the potential pitfalls and create contingencies.  It makes you aware of the situation, but realize that plans change as the situation changes.  First make a list of all goals you want to accomplish.  “Take a noun, verb, date and string them together for a goal.”  Then on the next page after listing the goals, write down all possible road blocks and problems.  And set goals that are high and reexamine them once a year.

In chapter 5 the authors talks about planning for death or the inevitable.  She talks about creating an estate plan.  Don’t be afraid of death and allow you to postpone planning a most inevitable event in your life. You have to determine assets/liabilities, decide who inherits, settle the executor, make sure all beneficiaries are properly filled out, create a living will or directives in case of incapacitation, and a what-if file.  Most importantly update your estate plan, because lives change and what is right now might be wrong in 10 years.

Section 3: Save Prodigiously

This section focuses on chapters 6-9 which cover creating an emergency fund, debt, retirement, and college.  Chapter 6 explains why a 6 month emergency fund (EF) is necessary.  She says don’t tie up EF in CD because it should be liquid and only used in real emergencies.  Too many people lack a proper emergency fund.

In Chapter 7 she talks about good and bad debt.  She recommends people read Dave Ramsey or David Bach books on how to get out of debt. She says she disagrees with both about investing however.  She recommends alternating paying off debt with building an EF because life happens.  She ends the chapter with the question should you prepay your mortgage?  Not unless you’ve saved the maximum in all retirement accounts, ie 401k and IRAs and pensions. Then yes, otherwise no.

Chapter 8 examines retirement investment accounts.  She says you should take full advantage of all potential retirement vehicles 401k, 403b, IRAs, etc.  She recommends avoiding tax deferred annuities which are not traditional retirement vehicles.  Also remember to rollover the 401k to your own IRA as soon as you leave the company. She wraps up with don’t ever take out loans against your retirement. You are gambling your future away.

Chapter 9 talks about paying for college for your children.  She says if you can and want to fine.  But the main caveat is “there are no loans for retirement”. So save for your retirement before you do anything else.  There is always student loans for college.

Section 4: Invest Wisely

This section covers chapters 10-17.  It covers different areas of investing.  Chapter 10 asks the question what is the higher purpose of money?  Or what do you want from your money?  This determines the investment philosophy you take on.  Chapter 11 says know yourself.  It says understand how you handle risk.  It likens investing to gambling and how would you deal with losing or making a ton of money.  Chapter 12 says financial success takes 2 components, starting early x steady savings.  Meaning that anyone can become rich if they start saving early and keep investing in methodical plan.  The book has a few charts of how much an investment would be worth after 20, 30, and 40 years.  The rule of 72 is emphasized, meaning if you earn an average of 7.2%/year returns the investment will be doubled in 10 years.

Chapter 13 tells us to invest our own money.  She said if you do need help avoid like the plague commission based people and seek out people who charge hourly or a one time fee.  Use a discount broker because it’s cheaper.  Also she said most people don’t even need a financially planner.  Because they don’t have enough assets to make it worth while.  She said she has no problem going to a planner as a partner, but going to a partner to not educate yourself is a mistake.  Most planners sell you things you don’t need.

Chapter 14 talks about creating passive income.  She says in the future without pensions everyone will need passive income.  There are many ways rental property, royalties, dividends, interest, or option premiums.  Decide which is best for you.  In chapter 15 she talks about controlling what you can and ignoring the rest.  Control you own spending and savings and ignore the market fluctuations.  You can’t control taxes but you can control your expenses.  In Chapter 16 she discusses not letting taxes ruin your investment strategy.  It’s the idea of sunk costs. The final brief chapter 17, she says ignore inflation at your own peril.  She cautions against not considering the cost of inflation.

Section 5: Manage Risk

This section covers chapters 18 – 23.  These are short 1-2 page chapters summarizing a wide range of financial topics.  Such topics include discussing disability insurance to reevaluating your insurance needs as you life changes.  The chapters also cover health care and potentially buying long term care insurance.  The next chapter talks about protecting your identity and your credit score.  The last chapter encourages you to get started on becoming a family CFO.

Conclusion:

It’s a nice and easy one day read.  Simple common sense answers to personal finance. It should motivate you to become more organized. I am not sure if I would buy the book, but definitely worth picking up a the library to read or winning it from me.

So leave a comment and have an opportunity to win.