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Managing your finances should be pretty straightforward.
A popular list of financial instructions fits on a 4”x6” notecard, the
foundation of the book The Index Card: Why Personal Finance Doesn’t
Have to Be Complicated. At the back of his Money Guide 2016, Jonathan
Clements includes 18 steps. Dilbert cartoonist Scott Adams offers a
These experts agree on four concepts:
- You must have an emergency fund.
- Index funds should make up most of your investment portfolio.
- Buy a home, but only one that you can afford.
- Remember life insurance. Basic term insurance is the answer for most people.
- Many of us are plagued by the infinite availability of shiny consumer
goods coupled with too little willpower to say “no.” Excessive
spending leaves less for long-term goals. Instead, we should set up
automatic account transfers. Unless you automate saving for
tomorrow, it’s not going to happen.
- Fortunately, Americans are putting progressively more money into index
funds that don’t pick individual stocks. These do better, on average,
- Buying a modest home.
- Most experts agree that buying a home is smart, but only an affordable
one. Too many of us are delusional about exactly what that means.
Consumers can’t predict their financial future, but they can be
cautious in the present. Less is often more.
- Investing in term life insurance.
- Nobody likes planning for possibly dying young. Term insurance is
often the best. You might pay $50 to $100 per month for 20 years and
be eligible for $500,000 or $1 million of coverage if you die (and
nothing if you don’t).
Sales agents too often push more complex forms of insurance with
investments and large, hidden fees, and mumbo jumbo riders. You should
ask for term insurance by name. Supply a urine sample and submit to a
nurse’s exam. Then hand over the money. It is a moral responsibility
for any parent of young children, unless in possession of substantial financial assets.
All of these tasks require some discipline, and discussing your
financial goals with others can be helpful. So be honest with
yourself, consult with someone who knows your weaknesses, and come up
with your own financial priorities.
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