Friday, February 04, 2011

THE ELEPHANT IN THE ROOM by Ed Baker

The Elephant in the Room
By Ed Baker
Publisher: First Command/Tony Leary International
Published: 2002
ISBN-13: 9780979365409
144 pages

First paragraph, Introduction, page 15: My name is Michael Davidson. I never imagined I'd find myself looking for advice at a time in my life when it seemed I had already achieved so much. Sure, I had needed advice during my younger years in college, but now I was facing down thirty, with a wife and two kids. [...]

This is a highly readable book on the secrets for pursuing real financial success, told in the form of a story. Ed Baker uses a character named Michael Davidson to bring this message across. If you are expecting technical reading on investing in bonds, shares, or other forms of financial matters, this book is not it. The Elephant in the Room is a financial fable. In this story, having a big income and successful career could still mean that one is living paycheck to paycheck, and not accumulating any savings, as in the case of Michael. I was rummaging through my treasure trove of books during Chinese New Year at home and found this little gem. I decided to dive straight in; finished it in two sittings.

The book gradually builds the case for financial freedom from the first meeting (I will talk about this in a bit) to dealing with attitude, building knowledge, exploring financial beliefs, identifying values, setting goals, exercising patience and discipline, forming the plan, and finally coming up with a sound financial planning model.

The protagonist of the story, Michael, decides to seek the help of his widowed aunt for advice. Aunt Katherine demonstrates sound financial practice and lives a good life right into her ripe old age. How does she do it? Michael seeks her mentorship. Little did he know that Aunt Katherine will put him through some seemingly trivial, non-related financial advice and thought processes. What she put him through is necessary because they form the basis of financial success. But Michael does not know that yet. He even feels annoyed and thinks they are a waste of his time. He is a numbers person and is not about to get touchy-feely. After all, he is very successful and is one of the top performers in meeting sales numbers.

Michael meets with his aunt at a restaurant every week together with wife, Jennifer. Jennifer is not present at the first meeting but following his aunt's advice, he rectifies it and gets his wife's involvement as well. If you are married, it is important to do it with your spouse so that both are aligned and share the same values toward achieving the goals set. Each week's meeting brings about "new discovery" and they build up upon one another. Michael becomes more and more excited, and begins to grasp the importance of his aunt's words. Aunt Katherine also emphasizes on the importance of a good financial planner. Even the best of athletes need coaches, so what makes financial planning any different?

What I also like about the book besides its very easy to follow message is the summary notes that Michael takes after each meeting. Despite his reluctance in following some parts, he remains open-minded and jots notes. This is an example of his summary for "Behavior":

Behavior is the "elephant in the room" when it comes to financial success.

Courage is needed to view the past and future realistically.

Think about my behaviors and how they might affect our financial situation. Talk it over with Jen. What are our attitudes toward money? Are they different?

Building a sound financial future entails more than just making money or investing it wisely.

There are specific traits, or behaviors that people who are successful in their finances adopt and incorporate into their lives. What traits and attitudes affect the way we earn, spend, and save?

What shocks me into realization is that you can earn a lot and still be poor. You spend more than you earn. You live in credit. Sometimes even drown in credit.

Reading the book also made me think about the way I spend my money: "And if those trips are important to you, you'll have to budget and plan for them. Which means making smart, value-oriented financial decisions. So, for instance, when it's time to upgrade that stainless-steel grill out back for the newest model the neighbors just bought, you'll be able to think about whether that grill is more important to you than the trip to the Grand Canyon with the kids."

Oh yes, I want the latest DSLR (in fact, I have set my eyes on the model that I want to upgrade to and the wide-angle lens I have been eying for the longest time), a brand new iPad, an iPhone 4, and so on and so forth. The list is so long and I have not even included all the books I have been coveting. But all this is going to change. I have—in fact—started making some small changes such as,
  • making the point to live frugally (taking the bus instead of taxi)
  • taking my Starbucks thermos with me so that I can save RM2 every time I buy my Americano
  • embarked on a book-buying ban, and imposing a policy of buying books that I will read immediately and not for hoarding.
These are small steps and there are more, but they are crucial ones that help me modify my behavior towards spending. As my blogger friend, Katie Gwilt-Cox, so rightly said, it is not fun but necessary. (Thank you for the support, Katie!) This is something that has been said to death and I know most of us, if not all, know that we should spend on what we "need" and not "want". Money facilitates values that are really important to us—that could be freedom, supporting family, leaving a legacy—and, it depends on what drives you and your values. Which makes understanding the root cause to our financial woes so important.

All in all, our behavior affects everything in our life, including the way we earn, spend, and save. This book deals with the specific elements of behavior and how understanding those elements impact our behavior and their relationship to our financial future.

I highly recommend this book.

P/S: Another review of an exciting book I've just finished reading is coming up. Stay tuned for the story of The Moneyless Man by Mark Boyle. He's a really engaging Irishman!