A few years ago, Harold Pollack, a college professor wrote a 3×5 financial advice card. The card spelled out some simple advice for financial success. This viral financial advice is good, but it happens to be missing something. As today’s consumer needs to prioritize saving and paying off debt before investing. So here is my spin on his advice.
First, Here is the 3×5 Financial Advice Card!
Now What’s Missing From The 3×5 Financial Advice Card
- Instead of Maxing Out Your 401(k) first, build your emergency fund. Ensure you have at least 6 months of living expenses saved for an emergency, then you can start putting money in your 401(k). If you work for a small business invest in a Roth IRA.
- Buy cheap mutual funds, but know what you’re buying. Even the most diversified funds did poorly in 2008 when we went into a recession. Understand that all investments come with volatility and know your tolerance. Target date funds or mutual funds may not be the best option. Try index funds, as fees are low and over the past 20 years, they’ve done better than managed funds.
- You can buy individual stocks if you can stomach the ups and downs and if you are well versed on the company’s services and products. Just because the person on the other side has more knowledge than you, doesn’t mean you can’t win as well. Remember, with individual stocks you have to pay special attention to your investment and what’s happening with the company. With mutual funds or other diversified investments, you can sit back a bit and let the investments do the work for you.
- If only it was that easy to save 20% of your income. With student loans and credit card debt, most people can barely save 1% of their income. 65% of Americans are saving little to nothing. So pay off debt first and then start at automating your savings with 5% of your income until you get to 20%.
- Keep your credit card balances low. The rule is anything over 30% hurts your credit. The beauty of keeping your balance low is that it’s easier to pay off each month.
- Tax Advantaged Savings vehicles are great, just remember that some of these vehicles are just putting off taxes until you’re retired. If you are still bringing in as much income at retirement as before then you could owe major taxes when you withdraw your retirement funds.
- Fees are everywhere. This one stands on its on merit. Managed funds aren’t doing so well, that you should be paying high fees to own them. Try to avoid them.
- Although standards are in place for Financial Advisors. Many no matter what you do will look out for you first, if you find your FA doing other than taking you into consideration first, find someone else.
- Social Security will never fully take care of you if something goes wrong. This is why is so important to save, save, save and then save some more.
Although, the 3×5 financial advice card has some good information, just ensure you take it all in stride. This information can work for some people, but not all. Know your financial literacy and what additional tools you can add to do your best with your money. Financial success is just one decision away.
Would you use any of the advice in this article? If so, tell us about it in the comments below.
Want More? Take A Look At These Great Financial Books.
- The Essays of Warren Buffet by Warren Buffet-Mr. Buffet is the most coveted investor in the world. When he speaks about finance, everyone listens. Learn more about the power of investing with the greatest of all time.
- The Million Dollar Portfolio-David and Tom Gardner the Cofounders of The Motley Fool have a great website that can offer you the investing advice you need. This book shows you how to put together a portfolio that could potentially lead you to your million dollar dream.If reaching this goal is important to you, read this book!
- Broke Millennial: Stop Scraping by and Get Your Financial Life Together-Erin Lowery. This is a smart guide for cash strapped, struggling 20 and 30 something’s. If you are losing control of your money and need help regaining your financial footing Lowery’s book can help get you back on track.
- The Simple Path to Wealth: Your Road Map to Financial Independence and a Rich, Free Life-JL Collins. This author is self published and uses his book to help beginners and seasoned investors to invest better. He truly subscribes to John Bogle’s ideas of how to become rich. The plan itself may seem boring to most, but if boring makes you wealthy, it’s worth the read.
Tamila McDonald is a U.S. Army veteran with 20 years of service, including five years as a military financial advisor. After retiring from the Army, she spent eight years as an AFCPE-certified personal financial advisor for wounded warriors and their families. Now she writes about personal finance and benefits programs for numerous financial websites.