Book SummaryThe Wealthy Barber, by David Chilton

1-Page Summary1-Page Book Summary of The Wealthy Barber

David Chilton’s bestseller The Wealthy Barber is an introduction to basic principles of personal finance. These principles are illustrated by means of a fictional story about a teacher (Dave), an auto plant worker (Tom), and a small business owner (Cathy) who seek financial guidance from a local barber (Roy). Roy has become wealthy by following the lessons he imparts to them. Roy’s (and thus Chilton’s) primary message is that steady, “boring” investments over time are the best way to accumulate wealth.

(Shortform note: The original version of The Wealthy Barber was published in 1989. This guide is based on the updated third edition of the book, released in April 2022. In this version, the setting of the fictional storyline has been moved from Canada to the US state of Michigan, among other changes. However, the financial numbers the book relies on are still very outdated (for example, the price of homes, the rates of return on investment, contribution caps for various retirement plans, and so on). Neither these outdated numbers nor the geographical setting is necessary to an understanding of the key principles; to avoid confusion or inaccuracies, this guide focuses instead on the book’s evergreen financial advice.)

During his barbershop lectures, Roy also addresses concerns and misconceptions that Dave, Tom, and Cathy have about financial planning. For example, he explains:

• Why it makes sense for Tom to save 10% of his earnings and save for retirement, even though this will cut into his modest income
• Why Dave’s worries that he doesn’t have the knowledge or...

The Wealthy Barber Summary Part 1: Fundamentals of Financial Planning—If You Do Nothing Else, Do This

Chilton begins his barbershop lessons with some general financial advice: Time is one of the most important factors in achieving financial success. How do you ensure that time is on your side when it comes to financial planning? First, start early. Starting to apply basic financial planning principles when you’re young can make all the difference in how much wealth you accumulate. (And of course, if you can’t start early, start now!) Second, be patient. If you invest your money for the long run (decades, rather than years), you’re likely to see much greater returns on your investment.

You can apply this general advice to many specific financial lessons, but none are more likely to put you on the road to affluence than these: Invest 10% of your earnings for long-term growth and contribute to a retirement plan.

Invest 10% of Your Income for Long-Term Growth

The most important step you can take if you want to become financially successful is to invest 10% of your income for long-term growth. This means taking 10% off the top of your paycheck as soon as you get paid (before you have a chance to spend it!). Chilton says you should invest that money in index funds...

The Wealthy Barber Summary Part 2: How to Save Even More Money

Once you’ve started investing 10% of your income for long-term growth and contributing to a retirement plan, says Chilton, you’re well on your way to financial success. Continuing to apply these two principles will provide you with a strong foundation for everything that comes next.

As you move through life, you’ll be faced with a series of financial decisions: things like whether to buy a home or rent, whether to pay for a vacation with credit or save up for it, and how to pay for your child’s college education. When it comes to these choices, surprisingly enough, there’s no wrong answer—but there are ways to increase the odds that you’ll accumulate more money as you go.

Only Buy a Home If It Makes Sense for You

Buying a home increases your assets and lowers your taxes. For most people, homeownership is an excellent investment. But Chilton points out that you should only buy a home if it’s right for you.

One situation in which it makes more sense to rent rather than own is when you simply can’t afford to purchase a home. Beyond the initial hurdle of coming up with a down payment, you might not be able to afford the mortgage payments, which are often significantly...

The Wealthy Barber Summary Part 3: Protect Yourself and Your Loved Ones

If you’re expending the time and effort to become financially successful, you’ll want to ensure that you and your loved ones are provided for in the event of loss. Make sure you have sufficient life, health, and disability insurance, and be sure to make a will.

Purchase Life Insurance, But Only If You Need It

Because the purpose of life insurance is to protect your dependents in the event of your death, Chilton advises against buying life insurance if you’re single and you don’t have kids. Even if you do have dependents, you still don’t need to buy life insurance if your “living estate” (your assets minus your liabilities) is sufficient to provide for your spouse and children, pay off your debts, and pay for funeral expenses.

If you don’t fall into either of these categories, you should purchase life insurance. To determine how much to buy, first consider everything your dependents will need to live comfortably in your absence—for example, your debts paid off, funeral expenses paid, college expenses for your kids, and sufficient income for your spouse. Then purchase an additional amount of insurance coverage to factor in account inflation. For example, if you want to...

Shortform Exercise: Determine Your Path to Financial Success

When it comes to financial planning, Chilton emphasizes starting as early as you can, so you can take advantage of compound interest, dollar-cost averaging, tax deductions, and other methods for saving money and accumulating wealth. Consider where you are on your path to financial success, and what additional steps you want to take.

Describe where you are on the path to financial success. Are you just starting out? Do you have the fundamentals down, but feel you need to do more? Do you have a plan in place, but think it might be too heavy on certain types of investments?