Some of My Favorite Personal Finance Books

Over the last few years, I've probably read a couple of dozen personal finance books. Some have been excellent, while others were not so. Here are my favorites, grouped by author:

Elizabeth Warren and Amelia Warren Tyagi

• The Two Income Trap - Compares and contrasts single income households and two income households, and how two incomes in some cases causes us to spend more
  
• All Your Worth - Describes how to set up a spending plan (budget), pay off "Steal From Tomorrow Debt," and save
  

Dave Ramsey

• The Total Money Makeover - Explains many myths and facts about credit (debt), lists his 7 steps for becoming financially secure, contains many testimonials of people as they work on his steps
  

Thomas J. Stanley

• Stop Acting Rich - Explains how there are few people who look rich and actually are rich, but many more people who try to look rich and live in expensive neighborhoods that are not rich
  
• The Millionaire Mind - Research on people who have a net worth of ten million dollars or more, explains why it is more profitable to spend time on tasks that could have a future return on investment (writing books), rather than things that pay out only once (building houses)
• The Millionaire Next Door - Explains how he found that most self-made millionaires live in well-established, middle-income neighborhoods, stay married, take on little (if any) debt, drive paid-for cars, and live well-beneath their income

Mary Hunt

• Debt-Proof Living - Basics of budgeting and setting up a "Freedom Account" to save for larger purchases

James D. Scurlock

• Maxed Out - Describes the ill-effects of living on credit, with plenty of real-life stories.

Most of these books have been available at my local library. If your interest is in getting and staying out of debt, I recommend picking up one of the books above. Do you have a favorite? If so, please post below.

Why Does a New Car Lose Value So Quickly?

We all know that a new car loses value the minute you drive it off the car lot, but why? Well, there are a number of reasons:

• New cars are sold at or near their manufacturer's suggested retail price. This includes the cost to manufacture, ship, warehouse and sell the car. The dealer purchased the new car at a specific price, which, if they wish to make a profit, they must sell to you at a higher price.
• Just like any other mass-produced product (i.e. electronics and appliances), once you open and use the item, it is no longer worth its original value when a new product is still available.
• Many people prefer to be the original owner, and are willing to pay a premium for that privilege. Once a car has a used label, it will be overlooked by shoppers willing to pay full price for a new car.
• There is the perception that new cars are more reliable, while an old car is going to leave you stranded on the side of the highway on any given day. The reality is that new and old cars get flat tires, and their engines will seize without regular maintenance. Because of this perception, many people will blindly trade up at the dealership, trading in their old car for less than it is actually worth.
  

As you can see, there are many reasons that a car loses value. What are your experiences with buying and selling new and used cars? Please post in the comments below.

Why Should I Avoid Debt?

Why should I avoid debt? Of the dozens of personal finance books that I have read, most describe how to get out of debt, but few give good reasons why a person should avoid debt in the first place. Earlier this year, my wife and I became debt free (except for our house). In January 2009, we decided that not only were we going to pay off our last debt (our car), but that we were going to run our household without taking on any new debt, and stay debt-free.
In July 2009, we paid off our last debt, and immediately began putting money into savings. In November we purchased a piece of furniture (a king sized bed) for $1700, in cash. What satisfaction we received from saving and purchasing the furniture without any interest payments.
By paying cash, we avoided the following:

• Spending future income: we could have decided to sign up for future monthly payments that would have tied up a percentage of our future income
• Paying for the privilege of borrowing money: the creditor could have charged us a ridiculous interest rate (most likely 19% or more), meaning that the bed, if paid off in the agreed amount of time, would end up costing $2023 ($1700 + $323 in interest payments)
• Risk: if for some reason we couldn't make the payment one month, the financing company could repossess the item and/or begin contacting us to collect on the debt
• Negative items on our credit report: because we didn't establish a line of credit with the furniture store, there is zero chance that a negative item will show up on our credit report because of this transaction
  

Because we paid for the item in full, we have avoided the issues outlined above. Planning ahead, shopping around, looking for the best deal, and saving up beforehand will allow you to pay in cash and avoid future debts. What are your experiences with avoiding debt? Please respond in the comments below.