10 Simple Money Rules // One Index Card

the financial industry loves to make money complicated you need to invest in 18 different asset classes you need a 22-page budget spreadsheet in order to manage your money and you need a highly polished financial adviser in order to beat the stock market but let me tell you a secret that the financial industry doesn't want you to know money doesn't have to be complicated just like living a healthy life boils down to a simple few habits sleeping eating well and exercising getting our finances in order can be as simple as understanding a few rules that'll fit on a 3x5 index card so in that spirit let me share with you 10 simple Money Rules from the index card why personal finance doesn't have to be complicated rule number one from the index card strive to save 10 to 20% of your income most of us when faced with the choice of saving or spending can't help ourselves but gravitate towards spending we've all heard of the famous MasterCard commercial there are some things money can't buy for everything else there's MasterCard with ads like this plastered everywhere we don't need to be told how to or where to spend our money D says it's as easy as a swipe of our finger or a to of our credit card to spend many companies go as far as providing payment plans to make spending easier thus it's not a surprise that today almost 47% of Americans report not being able to come up with $400 without selling something borrowing from a friend or Worse resorting to increased credit card debt so what we need is to get better at saving money we need to learn how to save so how to do this well let me share with you a few of my favorite tactics one monitor your spending get a good grasp of where your money is going every single month you can use pen and paper a Google sheet or my favorite use an account aggregator there are many free or or paid personal finance apps they'll automatically aggregate all your spending for you in one place this way you can see all your spending by different categories in real time two once you're able to see where your money is going every month aim to refine your spending over time if you're noticing that you're spending on Amazon more than you like aim to cut this little by little every month three automate your savings set aside a specific amount each month to be transferred from your checking account into your savings account remove the temptation to spend by letting the system do the heavy lifting for you and four lastly don't be so hard on yourself if saving is not something you're used to start small even $1 saved one step forward is something to be celebrated it's better to save 1% consistently than try to fail over and over again to save 10 to 20% rule number two from the index card why personal finance doesn't have to be complicated pay your credit card balance in full every month debt in general is dangerous but High interest debt like credit card debt can be detrimental if not managed well and one of the Cardinal rules to manageing credit card well is to make sure you're paying the balance in full every single month in the US the average credit card debt per household is approximately $88,000 but what is worse is not the amount but the fact that almost half the people fail to pay off their credit card bill in full every month and when credit card debt piles up and compounds the interest alone could end up being more than the initial debt itself do not get yourself in that situation here are a few tips and manage our credit cards better one if you're really having a problem stop using them lock them up in your drawer or if you want to take it to the extreme cut them up remember you can always order new ones once you have your debt under better control when my wife and I were in our student debt paydown phase in order to manage our spending better we actually followed the cash only envelope system for a few years we was set us had an envelope for groceries for eating out and for personal spending then we would fill them up with cash at the beginning of the month and when we ran out of cash that was it we had no more money we could spend two automate your credit card bill payment so the full amount is paid every single month do not leave this to chance or willpower you will forget or you'll justify not paying the full amount for whatever reason again let the system do the hard work for you so you can focus on more important things in life bottom line if we don't get our credit card spending and debt under control it'll be extremely hard to make Headway in our lives rule number three from the index card max out your 41k and other tax advantage savings accounts put as much money as possible into your tax advantage retirement accounts your future U will never regret having saved too much money on the contrary we'll always wish we saved more and when you invest in tax advantage accounts like your 41k IRA and hsas you're able save more because you're saving money in taxes there's a lot of tax Advantage account so here's a general framework to help you think about the ideal order of investment one start out with your employer 401K match this could be 3% 5% or in some places I've seen even 8% at minimum invest enough in your 401k in order to get the full match even if the stock market is not doing well you'll get an instant return investment when you invest at least up to the match you invest 4% of your income and your company matches you dollar for doll under 4% 100% return instantly trust me you will not find a better return on your investment anywhere two once you've invested up to your 41k match look to max out your Roth IRA the Roth IRA contribution limit for 2024 is $7,000 with the traditional 401K you get a tax deduction upfront but you have to pay taxes when you pull your money out so it's good to diversify your tax Risk by having some money in a Roth IRA account with a Roth IRA contributions are made on an after tax basis but any growth and withdrawals are taxfree so while you need to pay taxes up front once the money makes it into this account you'll never need to pay taxes on it ever again third after you max out your Roth IRA go back to your 401k and Max that out in 2024 the contribution limit for anybody under the age of 50 is $23,000 4K is one of the most simplest and effective ways to lower your taxable income and to put more money into the market now you don't have to follow the exact order I listed here but it provides a good framework and if you have access to other tax advantage accounts like 457 HSA and 529 make sure to take full advantage of them as well what matters is not the order but the fact that you're taking advantage of all the tax advantage accounts available to you but before I get to the next rule I want to take a minute to talk about our phone bills and mint mobile who I'm partnering with for today's video when you look at your wireless phone bill have you ever thought why in the world is it so high what am I paying all that money for Speed coverage data access to 5G unlimited talk and text what if I was to tell you mmobile offers all these features as low as $15 a month they're built on the nation's largest 5G Network and are able to keep cost low because their business model is based on Direct online selling they cut out unnecessary ret retail stores and salespeople and thus they able to pass those savings to you the customer why would you need to pay more than you have to to access the same network and switching to mmobile is super easy thanks to digital SIM cards you can sign up and activate immediately from your home if your phone doesn't have a eim card M will ship you a new one for free and right now mmobile is running a special promotion where any new customers can get any 3-month plan for $15 a month that's 50% off the unlimited plan which is normally $30 a month so if you want to start saving money on your phone bill today use my link or scan my QR code all right now that you have your phone bills dialed in let's get back to the video rule number four from the index card never buy or sell individual stocks many many years ago there was a company called Kodak in the 1970s Kodak single-handedly control almost entire film Market in the United States its film stock was considered the film for cameras for most of the 20th century so much so that people would even call personal memorable events the Kodak moment thus many believe buying Kodak stock was a sure winner I mean what could go wrong wrong right but it did go wrong starting in the late 1990s Kodak started to struggle Not only was there increased competition it struggled to transition from film to digital photography and in 2012 it filed for bankruptcy within a few decades it went from a shining example of a seller company to a dismal failure in hindsight many of us might think oh I knew that was going to happen I knew Kodak was on his way out but do we how many of us can confidently say that the truth is that no one knows a Stock's future many so-called professionals might say they do know they study these companies inside out they review their financials and they have a good understanding of macroeconomics so they know the winners from the losers but if you think about it there are just so many variables many variables that are outside of our control that can affect a company's performance the company may have an amazing product and a great management team however what if a geopolitical event throws the whole production process out the door or vice versa a company has a pretty crappy product and a mediocre management team but they're profitable because they happen to be an industry with minimal competition so be very wary when you hear people talking about how they can pick winning stocks the financial industry loves to spread the toxic message that playing the stock is easy and fun but that is because that's how they make their money it's not an ideal way for you to make money in the market but if not picking individual stocks how to invest in the market which leads to the next money rule rule number five from the index card buy inexpensive well- Diversified index mutual funds and exchange Trad funds instead of trying to beat the street we would all be better off just trying to keep up with it Warren Buffett is considered one of the best known investors in the world with a net worth of over 100 billion dollar he has surely earned that title so many of us might assume that he would be the biggest advocate for stock picking right I mean that's how he made his billions so others should do the same Ironically in his 2013 letter to Brookshire hathway shareholders this is what he said of his will my advice to the trustee could not be more simple put 10% of cash in short-term government bonds and 90% in a very lowcost S&P 500 Index Fund yes the ultimate stock picker recommends investing in a simple lowcost well Diversified Index Fund specifically the Vanguard S&P 500 Index Fund because Warren knows after seven decades of investing investing in a broad market index fund for a long period of time is the magic investing formula for most people for one a S&P 500 Index Fund doesn't try to beat the market it just follows the market plus able to reap the benefit of the overall stock market growth with minimal trading within the fund two because there's less trading and no highly paid active fund manager the cost is Rock Bottom most quality lowcost index funds have an expense ratio of 0.04% or less and three it works because it's so simple we don't waste our precious time trying to find winning stocks or actively manag funds and when we stick with an index fund over a long period of time the combination of market growth and low expense will compound our net worth bottom line be careful not to get distracted by all the shiny objects out there keep investing simple a quick reminder make sure to download your free one-page pdf guide that goes along with this video everything I'm covering here in a simple to digest onepage format go to the link I'll have in the description below to grab your free copy rule number six from the index card why personal finance doesn't have to be complicated make your financial adviser commit to the fiduciary standard when we go to the doctor we have a sense of faith that the doctor has our best interest at heart any medical recommendation he or she gives is for our best physical health so in the same way when we sit down with a financial professional AKA financial adviser it's easy to believe that this person is also acting in our best interest I mean he has all these acronyms next to his name so he has to be trustworthy right well it depends I'm a big advocate for managing our own money but there are scenarios when you might want to talk to a professional especially if your money situation is complex in that case make sure you understand this key word fiduciary this word that you know if the person that you're talking to for financial advice has a duty to put your best interest first a financial adviser working to a fiduciary standard has one a legal duty to act in your best interest and two is not getting paid to steer you into buying overpriced investment products that you don't want or need the truth is that the vast majority providing Financial advice do not work to fiduciary standard instead they work to something called the suitability standard is a recommendation suitable and adequate given the client's life circumstances another word for I can do whatever I want yes this overpriced under Diversified fund is suitable yes this unnecessary whole life insurance is suitable yes it is suitable that you hand me all your money so couple tips when interviewing financial advisors one check their credentials certified financial planner cfp registered investment advisor ra and fee only advisors are a good starting indication that they're working to fiduciary standards two ask this specific question ask do you work to the fiduciary standard at all times and emphasize the at all times part sometimes there are fine prints that allow an adviser to commit to fiduciary standards sometimes but not all the time for example fiduciary standard when offering planning services but not when selling Financial products pretty shady right three if it doesn't feel right feel free to walk away don't let anyone pressure you there is no shortage of financial advisors in the market and at the end of the day no one will care more about your money than than you do rule number seven from the index card buy a home when you're financially ready it's easy to get into a mindset that we all need to buy a home it's the American way it is the only way to build real wealth I'm throwing away money by renting however understand that homes are one of the most expensive purchases we'll make In Our Lifetime for the majority of Americans their home is their largest financial asset thus we want to be very thoughtful and careful about our approach yes homes can help with growing our wealth but only if we buy it right and we hold it for a long period of time here are a few recommendations to follow when buying a home one before home shopping get your debt under control if you're still struggling to pay off other debts such as credit card debt and student loans you might want to wait two aim to save 20% down as down payment not only will your monthly mortgage payment be lower you don't have to pay the private mortgage insurance AKA PMI three stick to a fixed 15 to 30e mortgage do tempting avoid adjustable rate mortgage AKA arm you don't want to be in a situation where your financial well-being is dependent upon future interest rates and four stick to your budget once you start home SHO shopping it's easier to get tempted one more room slightly bigger backyard a backyard pool but again this is one of the biggest purchases you will make in your lifetime so be thoughtful and methodical rule number eight from the index card insurance make sure you're protected insurance is not the sexiest Topic in the world but it is necessary you want to protect your downside here are six golden rules of insurance from this book that I really like one when it comes to life insurance stick with term insurance 20 to 30e term 10 times my expense is my favorite two when it comes to property insurance Insurance the higher deductible the better it lowers the premium payments and the chances are many of us will only use property insurance in major events not day-to-day home wear and tear three always double check that your hospital and your doctor is on your health insurance plan the last thing you want to happen is you show up piure Hospital for an emergency and you find that your insurance doesn't cover it four adequate liability coverage that at least twice your net worth five avoid complicated annuities if you cannot understand the product in 30 seconds there might be a reason more money for the insurance company not much for you and six keep an emergency fund not exactly insurance but a good emergency fund helps to smooth out all the bumps in life rule number nine from the index card do what you can to support the social safety net it's easy to complain about all the taxes that we have to pay income tax Social Security tax Medicare tax however the truth is that many of us have been the recipient of the programs that these taxes fund according to Cornell professor Susan metler 96% of us have at some point in our lives turn to the government for financial support and this financial support has allowed many of us to get through hard times in our lives and I know this from personal experience because if it wasn't for the many Financial programs that our family had access to growing up at times we wouldn't have been able to afford food rent and education thus I'm thankful and I understand why I'm paying my taxes so if you're in a good financial position do what you can to support the social safety net almost all of us have been helped or have friends or relatives who have been helped by unemployment insurance Medicaid food stamps P grants attend college or other government offerings rule number nine from the index card why personal finance doesn't have to be complicated final but simple remember the index card again the financial industry loves to over complicate money because that's how they make their money but money doesn't have to be complicated it can be as simple as all the lessons that can fit on a single 3x5 index card so remember that thank you guys for watching in the line of Simplicity if you want to know why I believe Simplicity is the ultimate sophistication please check out my video here until next time all the best

Channel: Tae Kim - Financial Tortoise

Views: 50,051

Keywords: Personal Finance, Money, Finance, Investing

Id: S-j7ABjhzDQ

Length: 15min 28sec (928 seconds)

Published: Mon Apr 22 2024