Financially challenged and in need of a few money rules?
You’ve come to the right place.
I’ve got some great tips for you on how to manage your monies.
I still can’t add without using my fingers, but I have been married to Sporty for long enough to have learnt a thing or two on the subject.
Which is to say, I know where to find our budget in Google Sheets and add the money I spent in the correct column.
Why All the Finance Advice Lately?
Silliness aside, I’ve realised lately just how important it is to have a good grasp on your finances. People are living longer, but they’re also unhealthier. This poses a double whammy for your retirement coffers.
Firstly, a longer life expectancy means you need to fund your lifestyle for a longer period of time.
Unless you’re planning to mooch off the kids, in which case, party on!
Secondly, what happens if you get sick? Health insurance almost never covers everything, which means dipping into your savings or getting into debt.
When you have youth on your side this scenario is problematic, but for someone older the repercussions can be dire. You could find yourself back in the job market at an age when what you should be doing instead is knitting, playing bingo or hiking the Appalachian Trail.
Avoiding a Financial Apocalypse
The younger you are, the easier it’s going to be to avoid the scenarios laid out above. The two most important and valuable things you can do are to simplify your financial life and stay out of debt.
Money management doesn’t have to be complicated.
Upon hearing that I’d just landed my very first job, my Nana sat me down for a little heart to heart. “Divide you salary into three,” she advised. “Save a third, use a third for your living expenses and spend a third.”
In other words, live within your means.
On the upside. Having a dubious financial past means I get to write about the mistakes we made and help you avoid similar pitfalls. Hopefully.
9 Money Rules on a Single Index Card
Harold Pollack —the mastermind behind The Index Card approach to personal finance— is also of the opinion that it doesn’t have to be complicated.
During an interview with personal finance writer Helaine Olen, the University of Chicago professor made the bold claim that the best personal finance advice “can fit on a 3-by-5 index card, and is available for free in the library.
He continued by saying that “if you’re paying someone for advice, almost by definition, you’re probably getting the wrong advice, because the correct advice is so straightforward.”
Pollack was speaking metaphorically but the internetz took him at his word and the emails began rolling in, asking where they could find said index card.
“I was kind of stuck,” Pollack admitted. “But I just took one of my daughter’s index cards and I scribbled a bunch of principles, and I took a picture with my iPhone and I posted it on the Web.”
These are the 9 money rules from his original index card:
1. Max your 401(k) or equivalent employee contribution.
2. Buy inexpensive, well-diversified mutual funds such as Vanguard Target 20xx funds.
3. Never buy or sell an individual security. The person on the other side of the table knows more than you do about this stuff.
4. Save 20% of your money.
5. Pay your credit card balance in full every month.
6. Maximize tax-advantaged savings vehicles like Roth, SEP and 529 accounts.
7. Pay attention to fees. Avoid actively managed funds.
8. Make financial advisors commit to the fiduciary standard.
9. Promote social insurance programs to help people when things go wrong.
Some of the advice might require a numbers brainiac. But since there’s usually one in every family, all you have to do is barter a fair trade exchange.
Here’s where your famous hip-widening chocolate cake will come in handy.
All Harold’s tips are worth following, but the one that really stood out for me (probably because it’s what precipitated the financial disaster that was my life for so many years) was this one: Pay your credit balance in full every month.
The Problem With Credit Cards
Credit cards are bad news for the financially challenged. They arrive in the post and you immediately rush off to the mall, giddy at the thought of the spending spree you’re about to embark on.
When I was young and not so smart I had one credit card, but nowadays you can have as many as you like. (I’ve never been more grateful to be older and wiser.)
Banks have a knack for making their credit card deals seem appealing. Even worse, they make them accessible to everyone, regardless of whether or not you can afford it.
Credit cards are useful. You can book plane tickets, hire a car, buy stuff online, etc. The trick, however, is to use them like a debit card. That way you avoid the astronomical interest rates.
But if you do find yourself in a situation where you need to dip into the bank’s money, be absolutely sure to follow Harold’s advice and pay the balance in full at the end of the month.