Can Everything You Need To Know About Money Possibly Fit On A 3x5 Index Card?
University of Chicago Social Science Professor Harold Pollack, during a 2013 interview with personal finance writer Helaine Olen regarding her book “Pound Foolish”, stated that the best personal finance advice “can fit on a 3x5 index card”. Shortly after that interview, Pollack and Olen jointly penned “The Index Card: Why Personal Advice Doesn’t Have To Be Complicated”. After being asked about writing a whole book about something that presumably should fit on one small bit of paper, Pollack replied “even the 10 Commandments needed backup material”.
During this series, we’ll examine 10 simple personal finance principles, inspired by that index card. We’ll explain why they are important and give you action steps so you can put them to use for your own benefit. If you would like more detailed information on any of the topics we present, we encourage you to contact us.
Money Rule #1 Strive to Save 10 – 20% of Your Income
We know this Rule is probably the hardest to follow, but it definitely has the biggest payoff. Any amount you can set aside outside of your monthly budget brings you that much closer to financial security. Today, the average American household is unable to find $400 to put towards an immediate emergency like an expensive car repair, a significant health issue, or a broken water heater. Here are some strategies to “pay yourself first”:
- Use “mental accounting” – designate separate money jars for “saving”, “spending” and “giving” as a starting point for accumulating smaller amounts of money that will add up over time. Once you have some funds build up, you can open separate bank accounts for each.
- Some banks offer “round up” or similar plans where they round up your debit purchases and put the extra into a savings account.
- Automate your savings and spending as much as possible. Most employers who use a payroll company will allow you to split your paycheck a percentage each in your checking and savings account. And sign up for automatic bill-pay where possible.
One question we are often asked is “how much money should I have in the bank?” A good rule of thumb is three- to six months of living expenses. But you should feel good about any and all efforts you are making towards achieving that goal.
(Inspired by: “The Index Card: Why Personal Finance Doesn’t Have To Be Complicated” by Helaine Olen and Harold Pollack; Random House, 2016)