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Breaking Down The “Personal Finance Index Card Everyone Should Read”

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This article has been edited and approved by a finance professional.

Recently, I came across this index card created by University of Chicago professor Harold Pollack on Reddit (which is also now a book), and immediately sent it to my boyfriend, exclaiming “We are GOING TO DO THIS!!”

In reality, I was already doing most of it, I just didn’t realize.

The index card of financial tips should not be seen as exhaustive, but it is a wonderful place to start if, like me, you’re good at saving and want to take your financial awesomeness up a notch. I am not a finance professional, and full explanations would be way too long for this article, so I’ve supplemented sections with further reading (side note, no idea the IRS website was so informative) for your leisure. Obviously, it’s up to everyone to do their own research about the specific financial strategies that will work for them, but this index card is a great place to start, and something everyone should read, if only to get a general sense of the State of their Financial Union.

Max your 401k or equivalent employee contribution.

For 2016, you can contribute a max of $18,000 pre-tax if you’re under 50, according to the IRS. For the non-employee-sponsored option, if you have an IRA and are under age 50, you can contribute up to $5,500 pre-tax annually. Obviously $18K a year is not feasible for many people, which is why it’s important to opt for employer match, if you are lucky enough to have that option.

This is, of course,  much too simplistic of an explanation, so I highly recommend more research into what exactly is your 401k, starting here. The IRS also offers great information on their site here and here.

Buy inexpensive, well-diversified mutual funds such as Vanguard Target 20XX funds.

I’m going to quote my personal favorite Subreddit — besides /r/unlikelyfriends — /r/personalfinance, here because they can say it better than I can:

It is the general philosophy of the /r/personalfinance community that the best approach to investing, especially for beginners, takes advantage of diversified funds of stocks and bonds. Instead of purchasing shares of specific companies (like Coke), you buy into mutual funds or exchange traded funds, which in turn own hundreds or thousands of companies. In this way, you get the upside benefit of the general trend of stock markets to go up, and eliminate the extreme volatility and risk that can come with holding single stocks. Good brokers to purchase shares of index funds from include Vanguard, Fidelity, and Charles Schwab.

However, while individual stocks as part of an investment strategy necessarily require more research and dedication from the investor — and may be above the capacities of a total beginner — they shouldn’t be discounted entirely, nor should one be irrationally afraid of the buying process itself. According to the finance professional TFD consulted for this post,

Opting for mutual funds or ETFs over individual stocks is a great way to achieve diversification at a lower cost and to try to benefit from general growth trends in certain industries or countries/regions.  But I wouldn’t dissuade someone from buying individual stocks entirely. Liquid stock markets, like the ones we have in the US, have rather transparent pricing mechanisms, which means that all those mini-auctions amongst the smart money should get you to what on that day is considered a “fair” price by a respectable number of people. That’s not to say it’s a good buy at that price, but not everyone who is selling is doing so because they know something that you don’t.  It’s definitely not a dumb move to choose to invest in a few well-run companies with great products that you think will be winners in the long-run.

There are a lot of good reasons to buy funds or ETFs over stocks, but the risk of getting duped is really not one of them.

Individual securities involve a higher amount of risk, as well as more frequent management, which to me sounds exhausting, expensive, and risky. Diversified funds are more convenient, cheaper, and, of course, diversified for security. While other people may find individual stocks suit their needs and goals, I prefer to go the safer and steadier route — but everyone has to find the investing plan that works for them.

Save 20% of your money.

Too far down the list, but I believe you should start your financial journey here.

Put 20% of what you make in your savings and don’t spend it. This is your emergency fund. Cherish it. Protect it.

Pay your credit card balance in full every month.

I’m constantly surprised by how many people I know have significant credit card debt. I was always terrified of credit cards, because I saw them as things of evil, and convinced myself I would never need one. This was stupid, as no credit, like bad credit, can cause you plenty of problems.

So I treat my card as a necessary evil.  My credit card is not for shopping sprees or nights on the town. It is for building credit, reward programs, and potential emergencies. I use mine almost exclusively at gas stations, pharmacies, and groceries for extra points (I try my best to not use my card where I get the least amount of return rewards) and pay it off in full each month.

Make your credit card work for you, not you for it.

Further reading on this topic can be found. A favorite useful tip from the article:

If you have multiple cards from one issuer, consider consolidating the newer cards into the older cards. You can do this by calling customer service and asking if they offer this, but only do it if they keep the total credit limit the same. The goal of this move is to increase the average age of your revolving lines of credit without reducing your total credit limit, which will affect your credit utilization ratio.

Maximize tax-advantages savings vehicles like Roth, SEP and 529 accounts.

A Roth IRA is a retirement account where you pay taxes on money you put in the account (IRA contributions are pre-tax). You can find your contribution limit here.

SEP (Simplified Employee Pension) allows employers to contribute to employee’s IRA plans.

529 is a tax-advantage plan that encourages you to save for future educational expenditures to a beneficiary, aka, your future child’s college tuition money. The earnings are not subject to federal tax (check your individual state 529 tax laws for eligibility) on a qualifying educational institutions. For example, for my undergrad, the 529 funds we used to pay for my college education were not subject to taxation. However, when we inquired if we could use leftover 529 funds for a class at a “for-profit” tech school, we had to pay the tax because the institution did not qualify for the tax break. The more you know. Further reading on 529s can be found here and here.

Pay attention to fees. Avoid actively managed funds.

Bank fee, late payment fee, ATM fee: there’s a fee for everything. Do some research into the depths of your bank account to see if you are being charged any fees that can otherwise be avoided.

Make your financial advisor commit to a fiduciary standard.

Many, if not most, of us probably do not have a financial advisor (other than our parents), because we simply do not have the assets to justify the use of one. But the day you do need financial advice, remember that your advisor will also be trying to make money and (gasp!) may not have your best interest at heart.

Fiduciary means involving trust, especially with regard to the relationship between a trustee and a beneficiary. Your financial advisor should have your interests and finances at heart first instead of theirs. If they don’t, stuff like this can happen.

Promote social insurance programs to help people when things go wrong.

I love this piece of advice because, even if you play by all the rules, job loss, medical accidents, and freak acts of God can occur at any time without discretion. I am 100% willing to pay a little more in tax dollars to encourage and protect the financial health of myself and the people around me.

In the U.S., one of the most frequent phrases I hear is “Why should I have to pay for somebody else’s _____?” I think this is selfish and short-sighted, because it assumes that financial catastrophe can only happen to someone else when, in reality, we are all just a car accident away from bankruptcy.

Of course, this is not an exhaustive list (estate planning, mortgage, insurance, etc, are left out), but it proves that your finances are not impossible to understand, and investing in your retirement is not inaccessible to all but the extremely wealthy. You should not be scared to take your financial health by the balls just because it seems complicated. With a little research and self-discipline, you can manage your finances (and impress your relatives at parties).

Jackie is a recovering worrier and dreams of being a freelance writer. She is on Twitter and Instagram (andYouTube!).

Image via Pexels

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  • A lot of this is gibberish to me because I’m not an American and a lot of it doesn’t apply, but I’m glad you made the point about not supporting social systems being short-sighted. You can complain about your taxes all day, but if people who need it aren’t being supported back into independence, they’re going to end up a burden on the state (ie. your tax dollars) anyway. So why not support initiatives that help shorten the time they need those services?

    • Maggie

      Yeah as a Canadian the 401k and Roth IRA stuff doesn’t apply exactly, but I’m willing to bet whatever country you’re from has somewhat of an equivalent, an account where you can put pre-taxed income in or put post-tax income in and not pay tax on the interest. For instance in Canada that’s and the RRSP and the TFSA

  • Sindhoo

    This is now a book, too, and I highly recommend it. It is a basic, easy-to-read, and informative breakdown of personal finance.

  • Harold_Pollack

    Thank you for noticing my work. i hope that it is helpful.

    • Jackie Onorato

      Very much!!