Harold Pollack was a college professor with an interest in personal finance. When he interviewed the personal finance author Helaine Olen for a blog, he made a throwaway remark that the best personal finance advice could fit on a 3x5-inch index card. So people started to ask him for it.
He wrote one out, took a photo, posted it on his blog – and it went viral. The result is his book, The Index Card: Why Personal Finance Doesn't Have to Be Complicated, co-authored with Helen Olen.
There are nine rules on Pollack’s index card and the book is broken into supporting sections. At its simplest, the index card advises saving 20 per cent (revised to a more realistic 10 to 20 per cent in the book) and to pay your credit card bill off in full each month.
So why do we need a whole book when the card is freely available online? As Olen and Pollack write, the rules “may be simple but they aren’t always self-explanatory”.
For instance, they dedicate two very weighty sections to why you should never try to “beat the street” by buying or selling individual stocks – apparently, less than 1 per cent of us can do that (and that’s including Warren Buffett).
Instead they advise buying a small selection of well diversified, indexed mutual or exchange-traded funds (ETFs) “for the long haul” and to steer clear of active fund managers who charge high fees.
They also warn that playing it too safe brings its own risks: bank savings accounts earn low returns and increase your risk of outliving your money, not to mention losing money relative to inflation along the way.
Finally, there’s a big warning about financial advisers. They recommend what is termed a fiduciary adviser in the US – one who has a “legal and regulatory duty to put your interests ahead of his or her own”. Again, they warn of the hidden fees you are paying for apparently free services (which are, instead, taken off your investment), and even warn against “fee-based” advisers who may also earn a commission. If it’s free, you are the product, says Pollack: if you want good advice, pay for it, and on a fee-only basis.
The advice given may be very US-centric but it’s worth brushing up on some solid, clear tips amid what Pollack calls the “cacophony” of noise created by the financial services industry.
The Index Card: Why Personal Finance Doesn’t Have to Be Complicated was published in hardcover in January 2016 by Portfolio.
q&a simple steps to save cash
Suzanne Locke offers more insights from The Index Card by Helaine Olen and Harold Pollack:
Sounds complicated. Is there any simple advice?
Yes – the first section is about budgeting and learning to save. Track your spending for three months, the authors advise, then create a budget – while leaving room for fun. Set money aside for an emergency – three months’ worth of living expenses – and keep fixed costs to 50 to 60 per cent of take-home pay. According to a 2013 survey by Gallup, two-thirds of us do not even keep the most rudimentary of budgets.
You say to pay your credit card in full each month – but what if I have debt already?
Only one-third of us pay cards off in full monthly. Pollack and Olen recommend paying down the card with the highest interest first. If you owe $5,000 on one card with 25 per cent interest rate and $2,500 on another with 10 per cent, with a minimum payment of $25 a month on each, but have $150 to pay down the two debts, you will save $1,000 in three years by prioritising the more costly debt.
Any easy tips I could implement tomorrow?
Insurance is essential, the authors say. When it comes to home buildings and contents insurance and car insurance, they say you can save a huge percentage by going for “high-deductible options”, ie pay a higher voluntary excess. According to a survey by InsuranceQuotes.com, US car owners can save 9 per cent by raising their excess from $500 to $1,000 and 15 per cent by raising it to $2,000.
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