Memo to parents, grandparents, recent college graduates and, well, anyone interested in managing their money well: Personal finance is nothing more than a dozen or fewer common sense money habits.
Case in point: The 4-by-6 index card on personal finance making the rounds on the Internet. University of Chicago social scientist Harold Pollack remarked in interview that you could impart the best investment advice on only an index card. Challenged to make good on his observation, Pollack rose to the occasion, writing down nine suggestions on an index card. His ninth idea, “promote social insurance programs to help people when things go wrong,” isn’t really personal financial advice, but it’s an important idea anyway.
What did he write down? Pay attention to fees. Save 20 percent of your money. Pay your credit card balance in full every month. Max out on your 401(k). Buy inexpensive, well diversified mutual funds and a handful of other good suggestions.
My list would be slightly different. For example, I’d add: have baby, buy term life insurance. Still, I like Pollack’s list. It’s simple and the advice works well for the 95 percent over a lifetime of saving and spending. Here is a link to Pollack’s handwritten card: www.startribune.com/a2499.
His list reminds me of a comparable observation made years ago by Andrew Tobias. He’s best known as the author of “The Only Investment Guide You’ll Ever Need,” one of the first books on money I read after graduating from college. Tobias is a terrific storyteller and he’s adept at bringing common sense money management alive. In a later book, “My Vast Fortune,” he summarized personal finance this way: “Doing well with money isn’t nearly as complicated as many believe. Largely, it’s a matter of adopting good spending and savings habits.”
Simplicity can pay off
Tobias fleshed out that insight with a paragraph that could easily be reduced to a series of sentences on an index card. “Make a budget, scrimp and save, pay off your credit cards, quit smoking, fully fund your retirement plan and start early — tomorrow, if you possibly can — putting away $100 or $500 or $5,000 a month, whatever you can comfortably afford, in two places: short- and intermediate-term Treasury securities, for money you might need in a few years; into no-load, low-expense stock market “index funds,” both U.S. and foreign for everything else. You will do better than 80 percent of your friends and neighbors. There’s not much more to it than that.”
No, there really isn’t.
Simplicity works with managing money. It’s all too easy to waste time and money plunging into complicated investments and financial strategies. Just about every complex financial product and cutting-edge money tactic manufactured by the financial services industry has turned out to be bad for your financial health. So when a recent college graduate, a colleague or a neighbor asks for tips about handling their money, send them to Pollack’s list, scan Tobias’ suggestions into their smartphone, and look up comparable advice by Princeton University finance professor Burton Malkiel, certified financial planner Ross Levin, and other savvy finance mavens.
Better yet, come up with your own index-card-length money insights.
Sometimes, less is more. That’s certainly the case with personal finance.