Many people struggle to save money every month, reduce debt, and build wealth. Having a list of financial tips that may help you is very useful to be less worried about money, while generating more income. The most famous finance books of the 21st century give thousands of tips on how to save and invest, even with an initial low income.
Your brain, ideas and knowledge are basically the most important asset to generate money. That’s why having these 12 financial tips internalized and using them may improve your financial life.
I’ve been personally following several of these 12 financial tips and they have allowed me to improve my monthly passive income steadily. In this entry, I will summarize the main ideas of each of the 3 most famous books of the 21st century and I will then present you with 10 tips that I got from the different finance books that I find personally very useful as well as easy to follow.
Which are the 12 financial tips from the best financial books of the 21st century?
1. Educate yourself financially (financial literacy)
Brain is your biggest asset. Almost everything you do or can do is form stuff you have learned. Financial education is often seen as boring or not necessary (typical “I don’t need money”). But the difference between knowing how to generate more income with the same dollar or how to avoid paying taxes legally can be huge and it grows exponentially more and more over time.
One way to educate yourself is by taking courses, which is recommended, even if it costs initially. You will probably recover it very soon as mentioned in many examples in the books. Another way is to have friends that are familiar with the topic and can help you with tips or directions, or even paying someone to help you understand the trends and where to generate money.
2. Distinguish between assets (money-producing things) and liabilities (money-costing things)
Rich dad poor dad is one of the books that describe this concept the best. It even tries to simplify it very much with some diagrams of balance sheets. However, in my opinion, there’s a very simple way to explain this concept. Assets mean things that produce money that you obtain as part of your monthly income, a part of your regular income source (usually your salary). Liabilities mean things that cost money but are not producing any money. For example, many people thing that having a house or a car is a liability but it is not because usually it involves having a mortgage that you need to pay every month, having less money to be invested to generate income.
Having a house that is rented or that is thought to be sold and not for living is instead an asset because the purpose of it is to generate more money that the initial investment when it’s sold or to cover the costs of the mortgage by renting it out and therefore, generating money every month and reducing the monthly costs.
Other types of assets are stocks. Picking the right stocks and waiting until the price increases to generate profit would be assets, since every time you make profit you generate income to your salary. Having dividends on these stocks would be also passive assets that generate money that is automatically reinvested.
And of course, cryptocurrencies can also be an asset similarly to stocks since the price can increase over time and you can make profits. But also, there are options to generate income from the cryptocurrencies passively, for example by staking them in a wallet or an exchange letting the people use it for transactions and generating a certain % between 3 and 19% on your cryptocurrencies directly at no cost. The money is automatically “reinvested”
3. Avoid paying taxes (legally)
One of the main differences between middle class and rich people is that people from the middle class pay lots of taxes (about 50% of the salary) and keep paying more over time. I would say it’s unfair but this is how currently the capitalism society works. The more you have the easier it is to generate money.
For example, investing in real estate allows you to avoid paying most of the taxes by selling and buying most expensive properties. Or, by renting out an apartment you basically can reduce many of the costs of the mortgage and mortgage interests, so that you end up paying much less of your earned rent.
Also, when having your money invested you can usually pay less taxes on the first income generated (e.g. in Germany you can earn 1000€ per year without paying any taxes on that, so you can play with that to withdraw 1000€ of benefits per year for free, which would be an increase of 5% of 20.000€ for example). Or you can also give your children or family 500k€ without anyone having to pay any taxes at all. Similar rules apply in the US or in other countries. So knowing the game of taxes is key to avoid paying taxes.
Even when having your business (such as consulting) as a company, you can pay many less taxes on stuff you “need” for the company legally.The taxes on cryptocurrency are similar to the taxes on stocks. You basically pay taxes on the benefits (dividends, staking interest, etc.). On stocks you pay taxes on benefits when having made a profit between the buying and selling price. On cryptocurrency it depends on the country. If you hold your assets for more than a year you pay no taxes no matter the amount (in Germany 2024).
4. Avoid being an under accumulator of wealth
This is one of the main tips of the millionaire next door. It’s common in all three most famous finance books shown here though. There are some people that are under accumulators of wealth, which no matter how much they have, they will increase their spending to match that. Mostly it's people that focus to earn more many with the goal to show that they have money as a status symbol. For these people, it’s very difficult to think about the future and save.
5. Pay yourself first (invest first)
Paying yourself first means to put a part of your salary apart each month to invest. Like this, you force yourself to invest that amount and you will adapt your spending with what you have left after that.
6. Diversify types of investment
This is a very popular advice. However, diversification doesn’t only mean to invest in different stocks but also in different types of investments. For example, you can invest in real estate (by buying a property and renting it out), you can invest in stocks, in cryptocurrency, in start-ups, in gold, etc. Having a little bit of everything helps yourself to be protected against crisis. For example, during the real estate crisis, it was good if you would have had other assets such as stocks or gold so that you could sell some of these and use the benefits to buy real estate at very low prices.
7. Diversify products within each type
This is directly related to the previous one and it’s basically to diversify within each type of asset. For example, you can hold different stocks from different branches (e.g. from the information sector and AI, or from the energy sector, etc.), you can also hold different cryptocurrencies (the historically important ones such as Bitcoin and Ehtereum or other new projects that use the concept of blockchain more efficiently such as Solana or that are related to exchanges that are famous such as the Binance coin), or invest in different start-ups (usually 90% of them fail, so it’s important to diversify to have the luck to get one of the 10% startups that do very well).
8. Every dollar is like a worker
If you think that every dollar is like a worker that you pay to produce money for you, you would basically take care of the dollars and give them more value, while being happier every time you put a dollar in an asset to work for you.
9. Find assets where you don’t need to work (time is your most valuable asset)
If you need to work yourself (e.g. by running an Airbnb and organizing the cleaning, the bookings, etc.) it basically means that is your job and not an asset. That’s why it’s important to find assets that leave you time for enjoying life and thinking about other investment possibilities.
10. Give first, receive second
I found this concept quite beautiful and not only applicable to money. It basically says that whatever you give you usually tend to receive it back. In general, if you start smiling and saying hello to more people, more people will start smiling back to you. If you help people giving money, somehow money tends to come back to you, usually in bigger amounts.
11. Develop healthy spending habits
Many people focus on getting money to be able to spend more money and show off that they have money with status symbols such as cars, bigger houses, etc. However, this is a never ending story. That’s why it’s important to develop healthy spending habits typical from people that accumulate wealth. These ones focus on accumulating wealth by avoiding these high-style living and focusing on investing smartly.
12. Avoid debt
One of the ways to improve your spending habits is by reducing debt. You can do that by focusing on high-interest debt first, creating a budget, building an emergency fund or increasing your income among other steps. I’ve written a detailed post about avoiding and reducing debt here.
Summary of the 3 most famous finance books of the 21st century
Rich Dad Poor Dad
This is one of the most popular books of personal finance. It’s fun to read because the author, Robert, had one dad that was a typical average person that focused a lot on education while the other dad was a friend’s dad that focused rather on generating money and making money work. He spends a couple of chapters pointing out the huge differences of mindsets of these two dads with one saying “money is not that important”, “ you should focus on studying, etc.” while the other focused on learning from life and from money and emphasized that money is indeed important because it give you power. Some of the main ideas in Rich Dad Poor Dad book are:
o The rich don’t work for money: The wealthy focus on creating assets that generate income, rather than relying only on earned income from a job.
o Investors benefit more from income gains than employees since they don’t have to pay as many taxes on these ones.
o Savers are losers: Saving is trendy among the poor and the middle class. However, the stock market crashes or our current inflation have shown that savers often lose out. Low interest rates make saving less attractive.
o Your house is not an asset: many people have believed that their home was their biggest investment but 2008 real estate crash revealed that a house is more a spending than an asset, except of course when you buy it as an investment to sell it or renting it out.
o Financial literacy is crucial: It’s not just about earning money but about understanding how to manage it effectively.
o Mind your own business: He emphasizes entrepreneurship and creating your own business. The goal is to build assets that generate passive income. Having a business of your own allows you to control more spending, income and especially reduce taxes.
o Understanding taxes and corporate structures is vital. One can use legal entities and corporations to minimize taxes and protect wealth.
o The rich invent money: The rich don’t wait for opportunities, they create them.
o Education doesn’t end in school. One needs to continuously learn and acquire new skills. Especially in this changing world.
The psychology of money
This book analyses the financial decisions throughout human history with insights from psychology. It helped me understand that financial management is not only about technical knowledge but about understanding our own biases, beliefs and experiences. This book also emphasizes that anyone can learn the psychology of money, no matter the income level.The background of people shapes their views on money, risk and financial management. For example, being born during the American Great Depression makes you take many different risks than being born around 1930s. He is convinced that soft skills matter most than technical skills. Basically, understanding your greed, insecurity and optimism based on your background.
Recommendations:
o Plan for the future by holding diversified stock portfolios and allowing them to compound over time. The power of compounding is astonishing. Humans tend to think linear and often underestimate the power of exponential compounding.
o Save for the future and operate with a margin for error for when accidents happen. The idea here is to have an “emergency fund” to avoid having to withdraw money from the investments that are generating compounding effects when some emergency happens.
Markets can change unexpectedly so you should be ready to overcome that by either protecting your investments with stop-loss orders or by having diversified investments.
o Avoid status symbols and extreme risk-taking. Maintain a humble and cautious attitude about the future since no one can predict what will happen.
o Financial success isn’t just about accumulating wealth but about having the ability to do what you want, when you want, for as long as you want (basically financial freedom)
o This freedom has an infinite return of investment (ROI) because it enriches your life beyond monetary gains.
o Housel compares investing to playing blackjack, which is a “game of odds”. With patience, you can stick around investment long enough for the odds of benefiting from a low-probability outcome to work in your favor.
The millionaire next door
The book emphasizes the importance of living below your means and avoiding the spending associated to status to show off wealth. It also shows how to adopt a mindset that is investment-oriented. It also gives the motivation that many millionaires are actually found in the middle-class and blue-collar areas, rather than in affluent and white-collar areas. Basically, it can be that your neighbor that is not showing off by driving fancy cars is a millionaire, precisely because is good with the spending habits and investments.
Spending habits: It distinguishes two types of people, the under accumulators of wealth (UAWs) and the Prodigious accumulators of wealth (PAWs). UAWs tend to spend much more money on luxury and status symbol, having less money left for savings and investments. PAWs focus instead on accumulating wealth by avoiding this high-style living. PAWs have a different investment mindset.
Investment mindset: PAWs can take risks for investments that have potential rewards. However, they avoid gambling. They instead invest in private business, stock market and venture capital.
Generational gap: children of UAWs often need financial support and are less likely to learn about budgeting and investing, which makes the generational learning worse. Usually UAWs tend to spend above their means, leading to debt. Instead, PAWs prioritize saving for the future and show that to the next generation.
Conclusion
I would recommend reading this list of the best books for financial education and getting the tips that are most useful to you. However, I’ve summarized the 12 financial tips from the best finance books of the 21st century that have been the more useful to me and that I think could be more useful to anyone so that you don’t need to spend time reading the books 😉
In general, I would say that educating yourself is the most important tip from the best finance books. It was since I started knowing more about investments that I started generating more money. If you like my style and want to get more useful tips, please subscribe to byobanking.com 😊
You can also ask for personalized tips, doubts or advice on investing by emailing me at beyourownbanking@gmail.com
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