Recently, I was hired by the Marion County (FL) Medical Society to do a keynote presentation at their meeting. A pre-program survey of their members indicated they wanted to learn about a variety of financial topics in 45 minutes. What to Do? I remembered the book, The Index Card, where ten tips related to many aspects of personal finance were shared on an index card.
I titled my presentation “Just Do Then Things Right.” Below are the ten recommended action steps that I discussed with my audience that I consider essential for financial well-being:
Spend Less Than You Earn- Live below your means with positive cash flow; i.e., where income is greater than expenses. You can’t save, invest, or build wealth for retirement if you don’t get this foundational action step right. Spending plan (budget) worksheets are a useful resource.
Strive to Pay Credit Card Balances in Full- Try to pay credit card balances in full every month as a convenience user so no interest is charged. If this is not possible, pay more than the minimum payment to reduce the cost of interest and shorten debt repayment time.
Try to Save At Least 15% of Your Income- Save as much as you possibly can and gradually work up to a 15% savings rate if you cannot save that much now. Studies have shown saving 15%+ of income can result in a significant nest egg- sometimes as much as $1 million- in later life.
Invest for the Long Term- Consider investing in equities (e.g., stock, growth mutual funds, stock exchange-traded funds) for financial goals that are five or more years away. Buy inexpensive securities with low expense ratios and beware of pitches for fraudulent investments.
“Max Out” Tax-Advantaged Retirement Savings Accounts- Contribute as much as you can afford, up to annual IRS maximum limits, to retirement savings accounts including traditional (pre-tax) and Roth (after-tax) IRAs and qualified employer plans (e.g., 401(k), 403(b), TSP).
Diversify x 3 (D3)- Diversify investments three ways: 1. Investment diversification (different asset classes; e.g., stocks, bonds, and cash), 2. Time diversification (hold investments over time to reduce their volatility), and 3. Tax diversification (mixture of tax-deferred, taxable, and tax-free securities).
Protect Yourself With Adequate Insurance- Insure against large financial risks including disability (to protect your earning ability), liability, and property damage. Consider adding an umbrella insurance policy if your assets (not exempt by state law against judgments) total $1 million+.
Practice Tax Avoidance- Take advantage of legal strategies in the tax code to reduce your tax liability. Specific strategies include retirement savings plan contributions, Roth IRA conversions, tax deductions and credits, tax loss harvesting, tax-free investments, and gifting to qualified charities.
Get Your Estate in Order- Prepare legal documents (e.g., will, living will, power of attorney) and update them as needed, discuss end-of- life wishes with personal representatives, review beneficiary designations on insurance policies and retirement plans, and prepare a digital assets inventory.
Keep Learning About Personal Finance- Learn one new thing every day about a personal finance. Ways to do this include books, newspapers and magazines, blogs, podcasts, seminars, social media platforms, and traditional media outlets (e.g., radio and television).
This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.
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