One thing I regret about college is that there was no class on personal finance. (Or if there was, I didn't know about it.) Sure, I wrote papers on the philosophies of Nietzsche, Arendt, and Kirkegaard, but no one ever made me take a quiz about 401Ks. But, as an adult who is interested in retiring some day, has two kids that need to go to college, and who likes to travel today, I'm very interested in understanding personal finance issues--like most of us are.
So, when I came across an interview with Harold Pollack, co-author of The Index Card: Why Personal Finance Doesn't Have to Be Complicated, my ears perked up. Pollack, and co-author Helaine Olen detail 9 easy (in theory, not always easy in practice) things you need to do to be on top of your personal finances. Here are the 9 things:
- Rule No. 1: Strive to save 10 to 20 percent of your income.
- Rule No. 2: Pay your credit card balance in full every month.
- Rule No. 3: max out your 401(k) and other tax-advantaged savings accounts.
- Rule No. 4: Never buy or sell individual stocks.
- Rule No. 5: Buy inexpensive, well-diversified index mutual funds and exchange-traded funds.
- Rule No. 6: Make your financial advisor commit to the fiduciary standard.
- Rule No. 7: Buy a home when you are financially ready.
- Rule No. 8: Insurance. Make sure you're protected.
- Rule No. 9: Do what you can to support the social safety net.
Pollack acknowledges that his 9 rules are not for everyone--they are designed for people who are already middle class, and it's important to note that. There isn't a one stop shop for financial advice for everyone.
Some of those things are easily understood--saving money and paying your credit card balance off every month, for instance.They may not be easy to do, but they are easy to understand. But, just what is the fiduciary standard? This is rule that requires advisers to sell products that will make the client better off, instead of products that will be to the advantage of the advisor. Definitely something you want.
Pollack also says that people are often shocked with rule 9: Do what you can to support the social safety net. He came to this conclusion after he and his wife became the caretakers for his brother-in-law, who has medical problems and an intellectual disability. He says:
We would have absolutely gone bankrupt without his Social Security, Medicare, and Medicaid that prevented our family from losing everything taking care of him. We have to have each other's backs. What the social safety net does, what social insurance does, is it is it allows us to protect each other against these risks that would just crush any one of us if we had to face it alone. It's really important. As individuals we should we should do everything that we can to be prudent investors and to support ourselves and our families and to follow the rules that I've laid out. But you cannot guard against everything in life. I don't particularly enjoy paying my taxes on April 15th, but I do feel that the American taxpayer had my back when I had a crisis. And you know I should be doing the same thing for other people.
While I'm not a financial advisor, I've been on the other side of the table when people realize that the financial choices they've made have not been good ones and now they have an emergency. His advice on 401ks and insurance are things that HR departments tend to advise people on. You may look at the cost for Short and Long Term Disability Insurance and think "I'm healthy. It's not worth it." I'll tell you, it is worth every penny. Not getting the 401k match is throwing away money. Don't do it.
And maybe, encourage your young adult children to take one fewer class on philosophy and one on personal finance.