All the Math You Need to Get Rich

1. Master Basic Math for Financial Empowerment

If you want to make sensible financial decisions, you absolutely must learn these topics, and you must get to know them thoroughly.

Math as a tool. This book emphasizes that only simple arithmetic is needed to navigate everyday financial decisions. Forget complex algebra or calculus; the focus is on practical math skills that directly impact your financial well-being. These skills are essential for understanding jobs, taxes, insurance, savings, investments, and buying a home.

Familiarity breeds confidence. The key to mastering financial math isn't innate talent, but consistent practice and familiarity. The book encourages readers to work through the examples carefully, repeating them as needed until the concepts become second nature. This approach builds confidence and eliminates the "hazy recollection" that often leads to poor financial choices.

Calculator as an enabler. The advent of cheap pocket calculators has democratized financial math. No longer is computation a barrier; the calculator handles the arithmetic, freeing you to focus on setting up the problem correctly. This book teaches you how to analyze financial situations and translate them into calculator-ready equations, empowering you to make informed decisions.

2. Percentages: Unmasking Financial Illusions

You will never again be fooled by percentages stated in a misleading way.

Percentage pitfalls. Percentages can be manipulated to create misleading impressions. Understanding how percentages are calculated and the importance of the base number is crucial for avoiding financial traps. Whether it's markups, discounts, or growth rates, a clear understanding of percentages is essential for making informed decisions.

Markup mastery. The book illustrates how to calculate markup percentages, highlighting the difference between markup as a percentage of wholesale price versus retail price. It emphasizes that the choice of base number significantly impacts the resulting percentage, and that understanding this difference is crucial for avoiding manipulation. Examples include calculating markups on bras and used cars.

Growth and the Rule of 70. The book explains how to calculate percentage growth over multiple years, using the formula F = P × (1 + r)^n. It also introduces the Rule of 70, a handy shortcut for estimating the doubling time of an investment: simply divide 70 by the annual growth rate. This rule provides a quick way to assess the potential of long-term investments.

3. Probability: Navigating the Odds of Life

This is what you have to understand so that you don’t get ripped off in gambling games or in buying insurance you don’t need.

Mathematical expectation. The concept of mathematical expectation is introduced as a tool for evaluating the worth of chances in any situation involving uncertainty. It's calculated as (probability of winning × payoff for winning) − (probability of losing × amount to be lost). A positive mathematical expectation indicates a favorable bet, while a negative one suggests a losing proposition.

Gambling and insurance. The book exposes how commercial gambling games, including lotteries and horse races, are designed with negative mathematical expectations for the player. Conversely, it demonstrates how some insurance policies, particularly collision insurance for those with sufficient savings, can also represent unfavorable bets. The key is to assess the probabilities and payoffs honestly.

Career decisions. Mathematical expectation can also be applied to career choices. By estimating the probabilities of different outcomes and their associated financial rewards, individuals can make more informed decisions about job changes or entrepreneurial ventures. The emphasis is on honest self-assessment and a willingness to accept calculated risks.

4. Big and Small Numbers: Grasping Scale with Scientific Notation

This chapter will explain the naming of very large and very small numbers.

Beyond millions and billions. The book reviews the naming conventions for large numbers, from millions to septillions, highlighting their relevance in contexts like national budgets and astronomy. It emphasizes the difficulty of comprehending such vast scales without a proper framework.

Scientific notation simplified. Scientific notation is introduced as a tool for expressing and manipulating very large and very small numbers. The book explains how to convert numbers to scientific notation, perform basic arithmetic operations, and interpret the results. This skill is essential for understanding scientific data and making informed decisions about complex issues.

Real-world applications. The book demonstrates the practical applications of scientific notation in analyzing government spending, energy consumption, and astronomical data. By expressing these quantities in a manageable format, readers can gain a clearer understanding of their relative magnitudes and make more informed judgments. Examples include calculating the cost of a manned mission to Mars per person and comparing the mass of Earth to Mars.

5. Cash Flow: The Lifeblood of Financial Health

Years ago people might have said that they couldn’t think with numbers because pencil-and-paper arithmetic took too long or because they weren’t very good at computation.

Beyond first-cost blindness. The book introduces the concept of cash flow as a tool for planning finances over time. It warns against "first-cost blindness," the tendency to focus solely on the initial purchase price while neglecting ongoing operating expenses. The story of Dick Ugson illustrates the dangers of ignoring cash flow.

Calculating cash flow. Cash flow is calculated by subtracting total expenses from total income. The book emphasizes the importance of accurately forecasting both income and expenses, including often-overlooked items like insurance, maintenance, and unexpected costs. A positive cash flow indicates financial stability, while a negative cash flow signals potential trouble.

Time payments and interest. The book reviews the formula for calculating simple interest (I = Prt) and demonstrates its application in various scenarios. It also introduces the concept of average unpaid balance and explains how it affects the true interest rate on loans repaid in installments. The importance of understanding interest calculations is emphasized to avoid being misled by lenders.

6. Compound Interest: The Engine of Wealth

Everyone knows that the Indians sold Manhattan Island for $24.

The power of compounding. The book highlights the transformative power of compound interest, illustrating how even small amounts of money can grow substantially over long periods. The example of the Manhattan Indians' $24 investment demonstrates the potential for exponential growth.

Calculating future worth. The formula F = P × (1 + r)^n is introduced as a tool for calculating the future worth of an investment with compound interest. The book also explains how to use the compound interest tables in the back of the book to simplify these calculations. These tables provide pre-calculated factors for various interest rates and time periods.

Annuities and mortgages. The book explains how to use the tables to calculate the future worth of annuities (repeated payments) and the payments required for mortgages. It also demonstrates how to determine the interest rate on a loan or investment, given the principal, payments, and time period. These skills are essential for making informed decisions about savings, investments, and debt.

7. Investing: Growing Your Money Intentionally

In making these decisions, total familiarity with some practical mathematical concepts is indispensable.

Beyond saving. The book shifts focus to investing as a means of actively growing wealth. It introduces various investment options, including money market funds, bonds, and stocks, highlighting their respective advantages and risks. The importance of diversification is emphasized.

Money market funds and bonds. Money market funds are presented as a safe and liquid option for short-term savings. Bonds are explained as fixed-income investments that offer predictable returns but are subject to interest rate risk. The bond yield formula is introduced as a tool for calculating the true return on a bond purchased at a premium or discount.

Stocks and mutual funds. Stocks are presented as ownership shares in companies, offering the potential for capital gains and dividends. The book explains how to calculate the overall yield of a stock, taking into account both price appreciation and dividend payments. Mutual funds are introduced as diversified investment vehicles that offer professional management and access to a wide range of securities. The impact of management fees and load charges on mutual fund returns is discussed.

8. Trade-offs: Making Smart Choices with Limited Resources

In many situations you have to give up some of something to get more of something else.

Recognizing trade-offs. The book introduces the concept of trade-offs as a fundamental aspect of decision-making. It emphasizes the importance of recognizing when a trade-off exists and understanding the implications of each choice. The story of Percival Ugmeister illustrates the consequences of ignoring trade-offs.

Creating trade-off tables. The book explains how to create trade-off tables to visualize the possible choices and their associated costs and benefits. These tables provide a structured framework for evaluating different options and making informed decisions. Examples include packing a suitcase, dividing door prize money, and balancing energy production with environmental protection.

Weighting and scoring systems. For more complex decisions involving multiple objectives, the book introduces weighting and scoring systems. This approach involves assigning weights to different objectives based on their relative importance and then scoring each option based on its performance against those objectives. The weighted scores are then summed to determine the overall rating for each option, providing a quantitative basis for decision-making.

Last updated: April 15, 2025