Several years ago I read a book called Millionaire Teacher by Andrew Hallam. The book explains 9 rules that allow someone on a teacher’s salary to become a millionaire by saving and investing. After purchasing the book I was pumped to find out how he did it. Afterall, if the author managed to pull it off then so could I. 🙂 So here are the 9 rules he outlined in the book.
- Don’t spend like you want to appear or feel rich. Instead, spend like you want to grow rich.
- Start investing right away to take advantage of time. Compounding interest is the 8th wonder of the world, says Einstein.
- Keep your investment fees low. A mutual fund with 1.5% annual fee will eat up a quarter of your investment returns every year given an 6% expected rate of return. That 1/4 return you could have made will stack up to huge missed opportunities in the future.
- Learn to control your emotions. Most people get worried and think about selling when the market goes down. But that’s often when stocks go on sale and valuations become more favourable so if anything, that’s the best time to buy. Don’t be emotional. Be rational.
- Balance stocks and bonds using the age rule. This basically means keep your age in bonds, and the rest in stocks. So for a 25 year old, his asset allocation would be 75% stocks and 25% bonds.
- Many investors have a home country bias. But it’s important to diversify globally.
- Many financial advisors and brokers have a strong incentive for you to stay in actively managed funds or other financial products. Understand that they are sales people, and don’t fall for their tactics.
- Don’t be seduced by the next hot stock or tempting investment opportunities that seem too good to be true. Stick to index funds.
- If you really must pick and choose individual stocks, limit your exposure to 10% of your total portfolio.
The author is one of the most frugal person I’ve know of. He house-sits for vacationers so he could live in their homes for free. He never turns on the heat in the winter and walks around the house wearing layers of clothing. He even catches his own food sometimes.
I generally agree with all 9 of his rules. I don’t follow rule #5 very closely as my asset allocation changes based on economic indicators and not just age. But for the most part I’ve been using Andrew’s advice for many years now, and my finances are in pretty good shape so I guess it’s working. 🙂 I would say the book is a great read for personal finance beginners. It explains lots of fundamental principles about money management. But I don’t think someone with an intermediate level of financial knowledge will learn anything new and substantial from the book.
Random Useless Fact:
The US Postal Service moves mail using planes, trains, trucks, cars, boats, ferries, helicopters, subways, float planes, hovercraft, mules, bicycles and feet.