The 3 books you should read before investing

I made a lot of mistakes before my investing performance stabilized.

Not only is it important to learn from your mistakes, it's also important to study what works for oneself.

While the "how to invest" is important, the psychology or "how I approach" investing is much more important.

In this post I will share the 3 books that helped me most out of many I read.

1. The Psychology of Money

The first step in investing is to have a surplus every month. Investing should be done with spare money, and it's not a good idea to borrow money or leverage.

In The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness by Housel Morgan talked about the savings rate. Having a high savings rate is more important than how much you make.

Even if you make a lot of money, your savings rate is low if you use it all.

Conversely, even if you make average income, if you don't spend it you have a high savings rate.

The first step to having a high savings rate is to have a surplus every month.

How you make a surplus is quite simple.

What I learned：Learn to enjoy the saving process

It comes from having a job. 

Get a job of interest, or if there's none near you. Then, all the things you want to buy right now, don't buy them. That basically means postponing what I want to buy right now.

Then instead buy long term stocks that give dividends instead.

Once dividends start to come in, it actually gets easier to build wealth over time. Until then, the book hints on how to kill boredom which is to walk and read.

Which is so true. Choose to walk or take public transport so you cut expenses. If you walk everywhere you seldom get medical bills neither.

Reading can get you more financially literate, and can prepare you to become an expert in your field of interest. Hit the library it's free to use.

I can't believe I didn't really do it until I read the book.

Other key points of the book:

• Don't show off your wealth
• Dont try to earn respect from how rich in money you are but by beimg generous and modest.
• What money can buy is freedom and time
• Happiness relies on how much control you have in your life, not what kind of brands you wear.
• Saving for no reason is a must. It helps you when you need it. It allows you to wait for the right opportunity, and take them when it really comes.
• Learning to save without a strong reason.

2. The Richest Man of Babylon

So what do I do when I have that surplus every month?

Invest it.

An economist Thomas Piketty has already proven that investing beats physically working to build wealth. 

So just like it saids on The Richest Man in Babylon by George S. Clason, invest at least 10% of your income. 

I read the manga version of this book and there were a few things that stuck with me.

The manga had a part where it suggested investing in good ETFs.

Just to emphasize the points of the book, here is a list.

1. Save one-tenth of your income
2. Prioritize your desires
3. Make your savings work for you
4. Protect your money from dangers
5. Live in a better place
6. Prepare for your future life today
7. Make yourself your greatest asset

What I learned: Figure out what my basic job will be

I'm still unsure of what one thing I'll choose as my role and earn my basic money from.

In the book, the main character was a sword smith. It's his family business, and it's basically the only role he has inside of Babylon. 

He lives within what he gets paid, but takes 10% first to pay off his debt, then to save. 

This part taught me to really think about what my role in society would be.

I'm narrowing it down by trying different jobs but it's something I should have an unfair advantage of. I'll narrow it down in the next few years.

Once I have that role, it gets a lot easier. Just do it and pay my investing account 10% of my income first. Then do it for decades. Improve my role so I make more money, being able to invest more money.

3. Just Keep Buying

Especially when there is a crash or the market enters a bear market, I started to doubt whether my investment plan is working or whether I should be cutting my loss.

After reading Just Keep Buying: Proven Ways to Save Money and Build Your Wealth by Nick Maggiulli, my investing became a lot more easy and automatic.

The book shows how you should just keep buying with past data.

Here is a list of key points from the book that were very helpful for me.

Buy stocks regularly. It is better to let your money work for you with your assets and earn an income.

Increase your income rather than save. There is a limit to how much you can save, but there is no limit to how much you can increase your income.

Don't push yourself too hard or stress yourself out with savings or investments. Try to keep a positive balance as much as possible.

It is better not to buy individual stocks, and you should diversify your investments by using investment trusts as much as possible.

Lump sum investments tend to perform better than installment investments.

Over the long term, US stocks are on the rise. Start as soon as possible.

Buy stocks using dollar cost averaging.

A crash is an opportunity to buy more stocks.

What I learned: Make the buying process automatic

I remember my mind went left and right when I had spare cash after investing my fixed amount of 30,000JPY, and paying off all my other expenses.

The book became a big hint to find my solution.

 Put half on the investment account and half on another account to use freely.

By putting half to the investment account I'm putting a little more on investing when I can, because I know there are times when it's a lot harder to. 

I have some spare budget I can do anything I want now, because investing is mainly for the future. But we all have a chance of getting in a car accident and dying today.

So half to use freely now makes best sense.

Usually I use the money to grow my small business or a new experience, something I can learn from.

To sum, by remembering to put half of the money I can spare to investing, I can keep buying more and build assets over time.

The 3 books that helped me the most

I wish I had come across these 3 books sooner, and that I knew about the approach to investing a lot earlier in life.

But I also think I might've gone through the same kind of mistakes until I fixed it towards the right direction of investing.

But these 3 books are good to know how to approach investing, and helps to be nonchalant towards growing the investment. Not having too much expectations for a short term fortune.

But there seems to be ways to gain short term gains when chances occur. It needs a high expected value for the investment plan to work well.

This needs a learning process, and it needs a lot of demo trading.

So that's another topic to be discussed in the future.

For now, I only focus on putting 30,000JPY every month to a good ETF, dollar cost averaging and it works fine. It's for the long term, and I look at the chart everyday to learn the patterns and the psychological aspects to investing.

Thanks for reading:)

Thanks for reading the content👋

In the blog I will share things I learned especially about finance and life advice. 

Japanese are relatively good savers when it comes to money, and I've been realizing it comes from good habits and mindsets that anyone can learn.

So, over time I'd like to share what I learned, and hope to learn from you, too.

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【Ryu Aomi】

Born in Yokohama, Japan. Raised in San Francisco, California.

After gaining experience in private banking in Singapore, I went on to writing for a few Japanese media online. Covid led me to pursue what I love the most which was discovering the street foods around the best food countries. This blog will be how I fund that life.