The Bogleheads’ Book Project, Chapter Two

Good morning, and welcome to Day #2 of the Bogleheads’ Guide to Investing October project. In short, JLP at AllFinancialMatters has organized a group book review, with different bloggers covering different chapters. For more information and links to the participating sites, please visit the project home page. With that said, let’s get to it!

While I’ve read (and greatly enjoyed) The Bogleheads’ Guide to Investing from cover to cover, I’m going to be focusing solely on Chapter Two today…

Chapter 2 - Start Early and Invest Regularly

I picked this chapter because the message that it conveys represents what is probably the most formative financial lesson that I’ve learned in my (gasp!) thirty-five years. Back in 1997, when my wife was pregnant with our first of our four boys, I picked up a book called Time is Money by Frances Leonard, and it revolutionized the way that I think about money (you can read more here).

Chapter Two of The Bogleheads’ Guide to Investing had much the same effect on me, which is saying quite a lot… After all, I’m no longer a personal finance newbie that’s just casting about for direction. Yet this chapter actually spurred me on to rethink our retirement investing strategy, and to find a few more bucks to throw at our retirement accounts.

Equal parts inspiration and information, this chapter kicks off with a section on the magic of compound interest. It then moves into a more detailed discussion of the importance of saving, and provides a number of tips on finding money to invest. These are really pretty common sense tips, but I think that they’re an important part of any treatment of personal finance. After all, you can talk about the mechanics of saving and investing until you’re blue in the face, but it won’t do any good if your target audience just throws up their hands and says:

“I know I should be doing it — it’s just that I don’t have any extra money to save.”

This chapter effectively dispels that myth and makes the case that nearly everyone can make some pretty painless changes to their lifestyle to free up at least a few bucks. And if you can’t — and I mean really can’t — then salvation is a just a raise away. If your current lifestyle truly sucks up every last penny that you earn, and you’re completely unwilling to make a change, then at the very least you should commit to using some or all of your next raise to start investing for your future. And from that point on, whenever you get a raise, increase your savings rate. You’ll never miss the money if you divert some or all of it to saving and investing before you get accustomed to spending it.

What if you’re cutting costs everywhere that you can, and you still don’t feel like you’re saving enough? Well, this chapter has the good sense to encourage you to create a side income.

I know it sounds cheesy, but the most important step really is to just get started. And the next most important thing is to stick to it. And therein lies the central message of this chapter:

The two most important things any investor can do are to start saving early and invest regularly.

For those of you that think you’ve missed the boat, keep in mind that early is relative. Sure, starting at twenty is better than thirty, and thirty is better than forty. But no matter your age, starting today is far better than starting tomorrow.

If you’re interested in learning more about The Bogleheads’ Guide to Investing, check out JLP’s review of Chapter One, or hop on over to the project home page where you can keep track of all the reviews as they’re published.