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My Top 4 Financial Independence Books

old books on a shelf

A common thread in the financial independence community is reading books. It is one of the best ways to learn, relax, and grow. Some of the most successful people in the world are voracious readers, and even say that reading everyday is key to success.

So, where should you start? I believe that there are 4 books that everybody should start with on their path to financial independence. Don’t get me wrong – these 4 books are not the “best” books, nor are they the only books you should be reading. I simply believe that these 4 books are a great starting point to achieving financial independence. Without further ado, let’s get to reading!

DISCLAIMER: The post will contain affiliate links that gives The FI Guys commission.

1. The Richest Man in Babylon – George Samuel Clason

The Richest Man in Babylon is my favorite of the 4 books listed in this post. It introduces an extremely important concept that financial independence seekers swear by: pay yourself first. What is “paying yourself first” exactly? Let me explain below.

Everyone has bills to pay – rent/mortgage, utilities, cell phone, etc. The “pay yourself first” concept considers yourself to be a bill that you need to pay. Not only do you need to pay this bill, but you need to do so first! By doing this, you are ensuring that you are saving more than you are spending – a fundamental financial independence concept.

How does this look in the real world? I’ll give you two examples.

  1. Your net pay is $3,000 per month. You decide to pay yourself (the book recommends 10% to start) $300 before paying any other bill. This means that you have $2,700 to pay your remaining bills.
  2. A better example is a 401k. You contribute 10% to your company sponsored 401k every pay period. You have successfully paid yourself first!

This book does a fantastic job of introducing this concept through humorous stories. I consider it to be a starting point to financial independence for the following reasons:

  • You will want to pay yourself more than 10%. The 10% figure is the absolute minimum here.
  •  The book does not discuss taxes – specifically tax advantaged retirement accounts. This is good for a complete beginner that does not want to be bogged down by details and complexities.
  • The book does not discuss index funds. Index funds are an important concept in financial independence and investing in general.

I will admit, this book is a bit elementary. However, it served as my first introduction to financial independence. This book illustrates a timeless concept in an easy to read, and quite funny, format. Whether you are new to financial independence or a seasoned veteran, I suggest picking up this quick read.

2. The Millionaire Next Door – Thomas J. Stanley

The Millionaire Next Door comes in at number 2 on my list. In short, the author studied and interviewed a large number of millionaires. He observed their buying and saving patterns, along with other lifestyle observations, in order to draw some conclusions on how to “truly” become a millionaire. This book has received a lot of flack and is the center of some controversy. Some people debate the actual facts and figures, while others claim that this book is outdated.

Nonetheless, it was a great read. It opened my eyes to the fact that it is usually difficult to determine who is a millionaire. People normally associate millionaires with a luxurious lifestyle. According to this book, this is just untrue. Most millionaires live in your middle class neighborhoods, drive used cars, and dress frugally. This book made me realize that a very common (and effective) way to wealth is through avoiding “keeping up with the Joneses”.

Despite the fact that this book is number 2 on my list, there are some drawbacks to it. A major drawback of this book is its lack of actionable advice. The Millionaire Next Door is primarily an observational book. It will not tell you how to invest. It will also not tell you ways to save money. One should take this book with a grain of salt and take time to do your own homework to either verify or dispute the facts.

Regardless, I do recommend this book to everybody. Even if the facts are a little off or outdated, it will provide you with some insights as to what it means to be a millionaire.

3. Set For Life – Scott Trench

Set For Life comes in at number 3 on my list, and is the complete opposite of The Millionaire Next Door. The first two books offer up insights and change your thought process on personal finance. This book will now put all of those observations and stories into action.

As stated above, this book gives sound, actionable advice on multiple fronts. It teaches you, from step 0, how to become “set for life” (aka financially independent). It does so by attacking the following: frugalityincome, and investing. Here are some snippets from my personal notes that I took on this book a while back. I am going to copy and paste them right into this post as block quotes.

Frugality

  • Largest expenses should be cut. This includes housing, transportation, and food expense. Live with a roommate, “house hack”, move closer to work, bike to work, meal plan.
  • Do not cut expenses related to happiness. Dinner with family, buying coffee every morning, etc…
  • Frugality can leave you open to explore new opportunities. It can enable you to take a pay cut for higher upside work (think sales, or working at a startup).

Biggest takeaway is to spend on what you truly enjoy! It is acceptable to buy a coffee everyday, or spend on family activities. Cut the largest expenses from your life using the “hacks” defined above.

Income

  • Because of frugality and a long financial runway, one is more flexible when seeking higher income opportunities.
  • Don’t bother with side hustle. Instead, focus efforts during workday. Don’t cut into family/hobby time.
  • One additional hour of study/skill honing per day can put you at the top of your field in 5 years. (I am iffy on this one)

When spending 8+ hours of your day at work, it can be really tough to gain traction with a side hustle. Focus your efforts on honing your skills used at work to increase your income.

Investing

  • “Real” vs “Unreal” assets. Real assets produce income or appreciate (stocks, rental properties, etc.). Unreal assets do not produce income and sometimes depreciate (cars, art, jewelry, etc…).
  • Index investing is extremely passive and is acceptable for those not seeking aggressive returns and early FI.
  • Leveraged real estate outperforms the stock market. As leverage position decreases, so do returns relative to stock market.
  • NEVER spend your principal. Once money goes invested, it is never to be “spent” again. Think of it as gone.

Final Notes

I seriously recommend this book to everyone. It introduces some awesome insights and actionable steps to pursuing wealth. As a followup to this book, author Scott Trench also published this post called 10 Seemingly Harmless Habits That Sabotage Ambitious Millennials. This article is a watered down version of some bad habits he outlined in the book.

Lastly, I want to leave you two of the biggest takeaways I had in my personal notes on this book: hedonic happiness, and return on enjoyment.

  • Hedonic happiness – the concept that there will almost always be a mean reversion to a set level of happiness. That new BMW will make you happier for about a month, and then you will return the same happiness level you had before buying it.
  • If something “A” is 10x nicer and more expensive than something “B”, it does not mean that you will enjoy it 10x more. Using the above example, a $100,000 car does not produce a 10x better driving experience than a $10,000 car.

4. Rich Dad Poor Dad – Robert Kiyosaki

Rich Dad Poor Dad is the most recommended book on real estate investing. This book is mainly about passive income, as told through the lens of a young boy with a “rich dad” and a “poor dad”. The young boy, presumably Robert Kiyosaki, teaches the reader lessons that he learned from both dads. Essentially, he teaches the reader how to be poor and how to be rich.

It is typical in the financial independence community to invest largely in index funds. Being an aspiring real estate investor, and wanting to achieve solid cash flow through rental properties, I found it suitable to include this book in my list. I want to make sure that I advocate for alternate investments, like real estate, and not just index funds. There is nothing wrong with index fund investing – I actually find it to be the most stable and passive way of investing.

For those of you that do not care to take an active part in your investment decisions, then index fund investing is for you. For those of you that want more control over your returns, I suggest picking up a copy of Rich Dad Poor Dad. As stated above, it is a great introduction into the world of real estate investing.

Key takeaway from this book is to consider alternative approaches to financial independence. There is no “one size fits all” in this space. Index fund investing, real estate, private equity, and starting a business are some ways to achieve FI. Do not limit yourself to just one if you don’t want to.

Conclusion

I really hope that you enjoyed reading about my top 4 books. Again, these are not the only books that I read. They are also not the only books you should be reading. Part of achieving financial independence is to take an active role in your continuing education. Pick up these books and get to learning!

In the beginning of this post, I mentioned that there will be affiliate links to the books mentioned. For those of you that are more frugal minded, get these books from your local library. Also, don’t forget to head over to Allen’s post Making Better Use of Your Library Card with Free Apps to learn how else you can use your library card to continue your education.

Let me know in the comments which book you plan on reading first.

Posted in Books, Financial Independence, Investing, Saving, Side Hustle

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