All you need to know about personal finance is right there, according to Harold Pollack. Now, Pollack is not an investment manager or financial planner; he’s a professor of social sciences at the University of Chicago. But his index card (that’s it, above) was so popular he wrote a book, The Index Card: Why Personal Finance Doesn’t Have to Be Complicated, with Helaine Olen.
In an interview on Minnesota Public Radio, Pollack identified the most important thing on the index card:
The most important of the index card guidelines is the one many Americans do not follow: “Pay your credit card balance in full every month.”
“Credit card debt is so deadly,” Pollack said.
Like the rest of the advice on the index card, that’s solid advice everyone should follow. [Minnesota Public Radio]
Edit: If you like short-form financial advice, the New York Times asked eight financial writers to squeeze their best tips onto index cards, too.
At The Motley Fool, Morgan Housel has an excellent article on how to actually save money. The bottom line: stop fooling around trying to drink less coffee or make your own lunches and focus on three things:
Pinching pennies is all well and good if you like pinching pennies. But savvy consumers don’t pinch pennies; they pinch dollars by the thousands. [The Motley Fool, h/t @DanielGershberg]
In the Federal Reserve’s “Report on the Economic Well-Being of U.S. Households in 2014” (pdf):
Forty-seven percent of respondents say they either could not cover an emergency expense costing $400, or would cover it by selling something or borrowing money.
I watched Frontline’s “The Retirement Gamble” with my wife tonight. It starts with the shift from company-managed pensions to 401K funds managed by all of us — or our financial planners. It is not a feel-good documentary. Many Americans are losing huge chunks of their retirement savings to fees, possibly for little or no benefit (well, not to the savers, anyway; the fund managers are getting plenty of benefit).
This was not a problem in the roaring 90s, when a monkey could make money in the stock market, but it’s a big problem now, when many Americans have seen their retirement accounts fall off a cliff, or at best, go flat.
What’s the root of the problem? According to Frontline, it’s not so much the fees, but the fact that financial advice is mostly doled out by salespeople whose only ethical requirement is to sell you something “suitable.” In other words, the financial products they sell you just have to sort of resemble the kind of product you want. They can’t sell you an insurance policy if you’re looking for a mutual fund, in other words.
Few financial advisors are fiduciaries, a word that means they would be required to put your interests ahead of their own. (Not salespeople, in other words.) It doesn’t seem to matter that most Americans have no idea what that word means or how to identify a fiduciary (hint: ask).
Are there good, well-meaning financial advisors out there who are not fiduciaries? I’m sure there are. I think my financial advisor is one of them. But whether you go with a salesperson or a fiduciary, you need to ask yourself (and your financial advisor, fiduciary or not) some important questions:
Above all, be involved in your retirement planning. If your investments aren’t growing, find out why — or find someone else to help you manage your investments more effectively.
Whether it’s skipping checkups with your doctor, doing your own taxes, or buying in bulk, chances are good some of your attempts to save money are really just costing your more, in the long run. I’d add “going to the grocery store.” My wife and I started saving a ton on groceries when we started getting them delivered, because there are fewer opportunities to make an impulse purchase on an empty stomach when shopping online. Plus, we save gas, family time, etc.
When people think of consumer debt, they think of credit card debt. According to the Federal Reserve, however, student loan debt has now surpassed credit card debt among consumers.
One of the first things you should do when you have a child—or even before—is to set up a 529 college savings account. Earnings from money in a 529 plan are not taxed as long as they go towards qualified education expenses. But the maintenance fees can add up over time. You can expect to pay .25-1.04% over ten years for Fidelity plans, for example.
The following tools can help you pick the lowest-cost plan for your child:
How to Find the Right 529 Plan With the Lowest Fees | New York Times