The book was born out of an interview with Harold Pollack, where he mentioned that the correct personal finance advice for most people is simple and fits on a 3x5 index card.
- Save 10 to 20% of your money. Know where your money is going. Make it your first priority to set money aside for emergency fund (3 -6 months of your living expenses): medical, car service, heater broke, etc. One way to cut spending is by using cash instead of card or electronic payment.
- Pay your credit card balance in full every month.
- Max Out Your 401(k), never forgo the employer match. Don't count on working forever. After your emergency fund, saving for retirement is the most important savings. The younger you start, the better off you will be. If one start at 25 saving $104 every month for forty year with 6% annual return the person will have about $200,000 by age 65. To accumulate the same $200,000 at the age 45, you will need to put aside $430 a month.
- Next step is college fund saving. There are two ways: Coverdell Education Savings Account and 529 plan.
- Invest in low-cost index funds instead of buying or selling individual stocks then buy and hold them for the long haul. Even Warren Buffett suggest this to his children, "A very low-cost S&P 500 index fund."
- Beware of the fees. Some index fund charge 0.17% while other charge 0.7%.
- How to determine how much money to put in stock market funds vs. bond funds:
- a. What's your age?
- b. Subtract that number form 100.
- c. The answer is the percentage of your assets that should be invested in stocks. Recommended allocation: a. Stocks: 70% S&P index fund, 15% small-cap index fund, 15% international fund. b. Bonds: 100% long term.
- Make sure your Financial Advisor commit to the fiduciary standard: certified financial planner (CFP), registered investment advisor (RIA), fee-only advisor.
- Buy a home when you are financially ready. Choose your location carefully. Buy a home that you can afford and fit your need not want. Fixed rate is the best.
- Insurance - Make sure you are protected: health insurance, home & car insurance, life insurance- stuck with term life insurance. Avoid complicated annuities.
