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<\/a><\/p>\nWe’ll all disagree with this overview on personal finance. But it’s good for the kids.<\/p>\n
Simple, Bedrock Rules on Personal Finance Smart money moves aren\u2019t more complicated than you think. They\u2019re simpler.<\/p>\n Cut through all the jargon and pontificating and technical stuff, and everything you really need to know about personal finance fits into less than 1,000 words\u2014no more than three to four minutes.<\/p>\n Ignore economic and financial forecasts.<\/strong> Their purpose is to keep forecasters employed. Most professional economists were blindsided in 2008 by the biggest financial collapse in 70 years\u2014and by the stock market\u2019s recovery.<\/p>\n Ignore \u201cexpert\u201d stock picks<\/strong>. The stocks that Wall Street experts like most generally fare no better than those they like least\u2014or stocks picked at random.<\/p>\n Keep it simple. <\/strong>Complicated financial strategies and investments are mostly designed to enrich managers and salesmen. A simple, diversified portfolio of low-cost index funds, rebalanced yearly, will do just fine\u2014if not better.<\/p>\n Buy individual stocks only as a gamble.<\/strong> Never buy fashionable investments.<\/p>\n Put most of your long-term portfolio into equities.<\/strong> While equities are volatile, they generally produce the best long-term returns\u2014typically about 4% to 5% a year above inflation. But remember to hang on when they plummet.<\/p>\n Invest globally, not just in the U.S.<\/strong> Foreign stock markets, in the aggregate, are no riskier than U.S. markets and offer terrific diversification.<\/p>\n Buy Treasurys, too:<\/strong> In addition to stocks, own some long-term Treasury bonds and some Treasury inflation-protected securities. These are likely to hold their value, or even go up, when stocks crash.<\/p>\n Never buy a lottery ticket.<\/strong> The lottery runs a profit, which means the players run a loss. And a study once found that the people who won ended up no happier than those who lost.<\/p>\n Know thyself. <\/strong>Don\u2019t pursue complex financial or tax strategies if you\u2019re not a details person. Cut up your credit cards if you\u2019re a shopaholic. Invest more conservatively if you\u2019re apt to panic in a crisis.<\/p>\n Buy high-deductible home and car insurance<\/strong>. It\u2019ll save you money. Insurance is necessary, but is generally expensive.<\/p>\n Protect yourself from disaster. <\/strong>Have disability insurance, either through work or directly. Buy term life insurance to cover dependents if you fall under a bus.<\/p>\n Save early, save often.<\/strong> Time and patience are the investor\u2019s best friends. Invest a dollar for 10 years at 4% and you\u2019ll have $1.50. Invest it for 40 years and you\u2019ll have nearly $5.<\/p>\n Use those free shelters.<\/strong> Contribute as much as possible to your company\u2019s 401(k) plan or equivalent (such as 403(b) or 457), and at least enough to get the company match. If you can, contribute to individual retirement accounts for yourself, and a nonworking spouse, as well.<\/p>\n Make the most of what you have<\/strong>. Don\u2019t pin too much hope on the next pay raise or stock windfall. The more we have, the more we want. Psychologists call this the \u201chedonic treadmill.\u201d The only way to have enough is to master the art of being satisfied.<\/p>\n Plan for a long life. <\/strong>A third of your adult life could come after you\u2019re 65. Try to pay off your mortgage, and save at least 10 times your annual salary, by the time you retire. Delay taking Social Security for as long as you can up to the age of 70, to maximize each monthly check.<\/p>\n Don\u2019t carry a balance from month to month unless you are planning to default and file for bankruptcy. Card interest rates are extremely high\u2014partially to account for the borrowers who will default. Make paying off that debt your overriding priority.<\/p>\n Cut the waste. <\/strong>There\u2019s fat in every middle-class budget. Most cellular bills are too high. Most cable bills are too high. Most people waste too much money on their cars. Few habits bust the budget more than eating out regularly.<\/p>\n Beware of buying your employer\u2019s stock.<\/strong> Your job there is probably financial exposure enough.<\/p>\n Tune out advertising.<\/strong> If you consider it all to be a pack of cynical lies designed to steal your money, that\u2019s about right.<\/p>\n Don\u2019t spend money showing off. <\/strong>Designer brands and \u201cluxury\u201d labels are created to overcharge the desperately insecure. They\u2019ll mark you out as nouveau riche. Old-money families keep it down low.<\/p>\n Protect your nest egg.<\/strong> Don\u2019t drain your retirement savings to pay for your child\u2019s college education. Likewise, don\u2019t empty your 401(k) or IRAs to start a business. You will be taxed and penalized on the withdrawals even if you lose the money. And so long as the money remains in those shelters, it\u2019s protected from creditors.<\/p>\n Teach your children about money.<\/strong> Teach them early and often. No one else will, and they will have to make their own way.<\/p>\n Value your money.<\/strong> Work out how much you take home, after-tax, for each hour you work. And remember that number\u2014especially when you shop.<\/p>\n Share.<\/strong> Finally, if you think giving to charities and good causes is the lowest-priority item in your entire budget each year, re-examine the budget.<\/p>\n I’d add six:<\/p>\n Stay healthy. <\/strong>No smoking. Plenty of exercise. Don’t get fat. Medical bills are the single biggest cause of personal bankruptcy today.<\/p>\n Your own business.<\/strong> If you get a chance to start or buy one, do it while you’re young. Never rely on your employer for security, raises or your sanity.<\/p>\n Keep learning<\/strong>. Especially computers and software coding. And marketing. The company which puts the consumer upfront always succeeds, no matter what. Coding adds a critical skill no matter what you do for a living.<\/p>\n Don’t ever think about retiring. <\/strong>It’s not what it’s cracked up to be. Golf destroys your brain and your self-confidence.<\/p>\n Don’t trust no one.<\/strong> There used to be no money and plenty of opportunities. Now there’s oodles of money and few opportunities (relatively). Everyone wants your money to invest in their latest scheme. I fear for morality. There are\u00a0 three rules: Most everything is a scam and hence injurious to your health or your pocketbook. Second, extensive due diligence is the ONLY\u00a0 solution. Third, when in doubt, say NO. And say it often.<\/p>\n \u00a0The family is key. <\/strong>Cherish all of them, no matter how crazy they are. They’re your<\/strong> crazy.<\/p>\n \u00a0You’ll find Arends’ original article here.<\/strong><\/a>
\nFor My Last Sunday WSJ Column, All You Need to Know in 833 Words<\/strong><\/p>\n
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\nHarry Newton is still waiting on all those contractors to call back, to show, to even get paid… By this small measure, our economy is booming. Buy more of those index funds — listed on the right.<\/p>\n