Just Keep Buying: Save Money and Build Your Wealth–A Book Review

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I just read Nick Maggiulli’s book, Just Keep Buying: Proven Ways to Save Money and Build Your Wealth and found it an excellent primer for saving and investing. It’s a book I’ll save to give to my girls when they are curious about learning how to manage their money. I like that it was so clear and concise. Best of all, Nick doesn’t just make assertions but crunches the numbers and then explains why one path might be better than another. 

As the title suggests, he shows that rather than time the market and wait in cash, you are going to be better off if you just keep buying. This is reassuring for new investors who might be scared of the market’s ups and downs.  

I like that he takes the time to explain why investing is important. He cites three key reasons:

1. Save for your future self (retirement);

2. Protect your money from inflation;

3. Replace your human capital (earning potential) with financial capital.

In my mind, points one and two are essentially the same. One day you will get old and may not be able to work. If you’ve been investing for that future, older you, you’ll be able to transition smoothly from working to earn an income to living off your invested assets. Most of us think that we’ll carry on working at least until full retirement age at 67. But the stats reveal that most people in the US actually retire at age 62, the soonest they can start claiming Social Security benefits.

Given this sobering data, I’d argue we should all put financial plans in place to retire at 62 and work on reaching financial freedom sooner, not later. This could be even more important given that the longer you can delay collecting your Social Security, the bigger your benefit is going to be. This offsets the risk of running out of money if you are lucky to live longer than expected. 

Inflation is a hot topic of the moment. We can’t expect to stash our cash under the mattress or in a savings account and maintain its value. Maggiulli reminds us that at 3% inflation, your money will be cut in half (in terms of spending power) every 23 years. At 5% inflation, your spending power will be cut in half in a mere 14 years. Thankfully, investing in real-estate and stocks generally works as an effective inflation hedge. 

Maggiulli answers a number of common questions that plague most investors. Some of the common questions include: 

Should you rent a home or buy?

How much of your raise should you save?

What is the best way to invest for short term savings?

How much do you need to retire? 

In order to answer each of these questions, he crunches the numbers (or uses the research) and then proposes a simple rule of thumb that you are likely to remember. This is one reason why I’d recommend the book for new investors. 

How Best to Invest for a Down Payment

Let’s take the simple question of how best to save for a short-term goal such as a down payment on a house. Should you save in cash, bonds or stocks? After running the numbers, Nick concludes that “If you need to save for something that will take less than three years, use cash. If you are saving for something that will take longer than three years, put your savings in bonds.” This is because stocks could crash and decimate your savings. Of course, he also states for a five-year savings goal, you could use a balanced portfolio to moderate the risk of stocks crashing just when you need them.

If I had a short-term goal, my first port of call would be to save in ibonds. You can buy them from the US Treasury Direct. These are inflation protected and you can buy up to $15,000 a year if you use your tax refund. See my blog on ibonds here. This would have to be the safest way to save for a down payment without worrying about the effect of inflation or the volatility of the stock market erasing your hard-earned savings.

How to Prevent Lifestyle Creep

My favorite tip in the book is Nick’s rule of thumb for preventing excessive lifestyle creep. Save 50% of all your raises for retirement and spend the other 50%.

He breaks it down in a nice chart in greater detail in the book. But this simple guideline will work for most people and provides a nice balance of being able to enjoy some of your increased earnings now. It also ensures that you won’t fall short in your retirement savings. It is easy to increase your lifestyle. It’s not so easy or comfortable to cut back! However, if you want to retire sooner, you might consider saving a larger percentage of your raises to fast track your way to financial freedom. (See my blog on how your savings rate determines how quickly you can retire).

When is the Right Time to Buy a Home

The one point I’d disagree with Maggiulli on is his criteria for deciding when is the right time to buy a home. He urges you to wait until you have these three conditions in place: 1) you plan on being in the home for at least 10 years; 2) you have a stable professional and personal life; 3) you can afford it (you have a stable income and have 20% saved for the down payment). He urges that you rent until you satisfy those three conditions.

Here is where I’d counter with the fact that most people move every seven years. So, it is unlikely that you’ll be in a home for 10 years even if you think you will. Second, according to the research by Daniel Amerman in his books, The Homeowner Wealth Formula and The Eight Levels of Homeowner Wealth Multiplication, the average homeowner saw their home climb by 11.4% in three years of ownership (based on homes bought anytime between 1975 and 2019). So I’d cut Maggiulli’s first point in half. I suggest that if you think you’ll stay there five years, it is probably going to work out in your favor financially.

Of course, the one thing that is true about real-estate is that it is very location dependent and every market is different. If it is much cheaper to rent in your area than it would be to make a mortgage payment, then you could be better off renting and investing the difference. But you must invest the difference and that is where most renters fall short. Instead, they spend the difference!
I’m a big fan of buying your own home simply because as a group, homeowners are much better off than renters. So, it makes sense to move into the homeowner category. Second, your home does a good job of keeping pace with inflation, and that is an impressive feat. Third, you can’t live in your stock portfolio. I like an investment that not only keeps up with inflation, but also enables you to safely use leverage thanks to a fully amortized mortgage. As an added bonus, you get the joy and pleasure of having a comfortable place to live without having to worry about increasing rents or fickle landlords.

If you have any doubts about home ownership, then I’d urge you to read Amerman’s books. It isn’t an accident that homeowners, on average, have 40 times the net worth of the average renter. The “…historical evidence is overwhelming that owning a home with a mortgage is the single best defense against inflation that is available to the average person.” I covered this topic in greater depth on this LifeCoach Live. Other than that, I agree with Maggiulli’s advice and would give the book a thumb’s up.

To learn more about becoming financially free faster, consider the FIRE Course.

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