University of Chicago social scientist Harold Pollack says that everything you need to know about finances will fit on one index card. His advice is summarized below:
- MAX your 401(k) or equivalent employee contribution.
- Buy inexpensive, well-diversified mutual funds. Pay attention to fees. Avoid actively-managed funds.
- Never buy or sell an individual security. The person on the other side of the table knows more than you do about their stuff.
- Save 20 percent of your money.
- Pay your credit card balance in full every month.
- Maximize tax-advantaged savings vehicles like ROTH, SEP, and 529 accounts.
We would add to this list:
- Carry enough insurance to provide for your reasonable needs and cover reasonably probable risks.
If you follow these principles, you will be in much better shape than most Americans.
Adapted from the article “Everything you need to know about finances on a 4×6 index card.”