Money Magic - A Book Review
Welcome to Saving Money with Andrew!
In Money Magic, Boston University economics professor and tech entrepreneur Lawrence Kotlikoff applies rigorous, quantitative reasoning to extremely common and high-stakes financial decisions relevant to most Americans, offering tips on things like:
Choosing a college
Choosing a career
Using student loan repayment plans
Renting vs. buying a house
Taking maximum advantage of tax-favored retirement accounts
Navigating complex Social Security rules
Kotlikoff includes tons of anecdotes throughout to keep things interesting, and offers a lot of novel and sometimes counterintuitive tips on these subjects. Some examples:
College and Career Tips
If you want a brand-name degree, consider starting at a community college or state school and then transferring to a more prestigious (and expensive) school to save money.
Consider low-cost certificate programs, such as those from Coursera, as a way to bolster your resume and learn new skills.[1]
When considering potential careers, browse the BLS’s Occupational Outlook Handbook, an incredible and little-known resource with salary data for almost every job.
Student Loans
Carefully compare different student loan repayment plans before choosing one. In certain cases, income-based repayment plans are a terrific deal. In others, they are a poor choice.
Income-based plan payments are typically calculated from adjusted gross income (AGI). If you’re on one of these plans, anything you can do to reduce your AGI (such as contributing to a 401(k), an FSA, or even a commuter benefit program) can yield significant additional benefits in lower loan payments.
Social Security Tips
Avoid taking the “complimentary” six month advance benefit payment at age 70, which sets your retirement age back by six months and is almost always a terrible deal.
Carefully consider the impact of the various rules governing income earned outside of Social Security. These rules can vary greatly based on your age, and are far too complicated to cover here.
There are tons of other tips in the book, on subjects ranging from where to live to what to look for in a spouse and more. Most of them will be irrelevant to your situation, and a few of his tips are a bit strange, but even if you find one useful tip it’s well worth it. One caveat—skip Chapter 9 on investing, where many tips seem to represent his own personal biases, are impractical or too complicated.
I listened to the audiobook at 1.5x speed (about a five hour listen while commuting or walking). I took it out for free from our local library, so the only investment was my time, and came away with some interesting ideas for myself and a useful tip for a friend about how to reduce their student loan payments by as much as $50 per month.
Money Magic isn’t perfect, but it’s one of the best personal finance books I’ve read (and I have a high bar). If you’re interested in personal finance (and you do read my newsletter, after all), it’s probably worth borrowing from your local library.
And now…Andrew’s pick(s) of the week:
What Surging Gasoline Prices Mean for You
Fraud Is Flourishing on Zelle. The Banks Say It’s Not Their Problem.
Your Skin Doesn’t Need Skin Care (!?)
Why it's almost impossible to lose things in Japan (via Marginal Revolution)
At a time when inflation reached a 40-year high, the entertainment giant just launched its interactive two-night Star Wars experience, which starts at $5,300 for a family of three.
and
[T]he nightly price of the cheapest room at Disney World’s Pop Century Resort rose from $95 in 2013 to $168 this year. That $73 difference is a 77 percent increase, more than three times the rise in inflation over that span.
I hope this has been helpful. If you liked it, please share it on social media! Also, please send me your feedback, requests, and success stories.
[1] Coursera is great. A long time ago, I took some of the first-year Wharton MBA courses on Coursera. I learned a lot and it was totally free. Introduction to Financial Accounting was particularly useful.