TV analysts and money managers would have you believe your finances are enormously complicated, and if you don't follow their guidance, you'll end up in the poorhouse.
When University of Chicago professor Harold Pollack interviewed Helaine Olen, an award-winning financial journalist and the author of the bestselling Pound Foolish, he made an off-hand suggestion- everything you need to know about managing your money could fit on an index card. To prove his point, he grabbed a 4" x 6" card, scribbled down a list of rules, and posted a picture of the card online. The post went viral.
Now, Pollack teams up with Olen to explain why the ten simple rules of the index card outperform more complicated financial strategies. Inside is an easy-to-follow action plan that works in good times and bad, giving you the tools, knowledge, and confidence to seize control of your financial life.
HELAINE OLEN is the author of Pound Foolish, writes The Bills column for Slate, and is a regular columnist for Inc. She has appeared on numerous media outlets, including The Daily Show with Jon Stewart and Frontline. Business Insider calls her one of the 50 Women Who Are Changing the World.
HAROLD POLLACK is the Helen Ross Professor of Social Service Admin-istration at the Univer-sity of Chicago, where he researches health and urban policy concerns and is a nonresident fellow at the Century Foundation. He writes regu-larly for the Washington Post, Politico, Atlantic Monthly, healthinsurance.org, and other publications.
"The most important financial advice is stunningly simple and fits on an index card. The newbie investor will not find a better guide to personal finance." --BURTON G. MALKIEL, author of A RANDOM WALK DOWN WALL STREET "Ten simple, amazingly effective rules unencumbered by the agendas of fee-sucking fund managers or reckless business-media pundits. Highly recommended." --NOMI PRINS, author of ALL THE PRESIDENTS' BANKERS
"The Index Card offers engaging stories, persuasive explanations, and fascinating data. It's realistic, honest, wise, and compassionate, as well as socially and politically astute." --JOE CONASON, editor in chief at THE NATIONAL MEMO
"All parents should buy The Index Card for their children. If they refuse to read it, consider disinheriting them." --ROBERT H. FRANK, professor of economics, CORNELL UNIVERSITY
"In a world of relentless financial noise, Helaine and Harold are here to help. This is the best and most important financial book of the year." --ZAC BISSONNETTE, author of DEBT-FREE U and THE GREAT BEANIE BABY BUBBLE
"The most important financial advice is stunningly simple and fits on an index card. The newbie investor will not find a better guide to personal finance." --BURTON G. MALKIEL, author of A RANDOM WALK DOWN WALL STREET
INTRODUCTION SAM''S STORY A few years ago, Sam received an inheritance after his dad died. Grief stricken and overwhelmed by the demands of work, marriage, and raising children, he placed the money in a local bank''s savings account. Every so often, Sam would make an effort to think about the money. He knew he should invest it in . . . well, something. A few times a year a very official-sounding officer from the bank, someone called a wealth officer, would contact him about it, suggesting a complimentary meeting. So Sam would sit down at the bank, and an advisor would offer him coffee and muffins and talk to him about his children, his job, and where he next planned to go on vacation. Then he would offer a solution, the next-best thing to a guarantee, he said, as he started talking really fast about expected rates of return, risk, and the importance of the stock market. The wealth officer, or wealth specialist, or whatever the heck he was called, wanted Sam to sign papers right there and then so the money could get to work, as he put it. But Sam held off. He knew there were unscrupulous money people out there, and he wanted to do his due diligence. So Sam would call friends, and friends of those friends. Sometimes those friends were in finance or married to people in finance, and they would make suggestions based on what they had picked up from their jobs or their husbands or wives over the years. One offered to manage the money for him altogether but didn''t say how he would be compensated for his time and effort. Another said he should call Vanguard and put the money in something called index funds. Bonds, advised another. Others talked about allocating different percentages to different investments. Still another pal suggested a financial advisor named Kelly who had done amazing things for him. Other people told Sam horror stories. There was the friend who had been persuaded to invest in tech stocks in 1999 and lost "a bundle," as he put it. A coworker told him about the friend of the family who seemed so kind but put her mom in some sort of investment that didn''t do what it was supposed to and left her in a worse position than when she started out. Several people mentioned Bernie Madoff. It was overwhelming. It seemed as if everyone contradicted one another. And they were all so sure . . . sure that they had the secret to how to make money grow or that it was all a rip-off. And Sam was scared. He needed that money. He wanted to send his children to college. He couldn''t bring himself to risk losing it. So Sam ended up doing . . . nothing . Not only did Sam''s nest egg end up losing a chunk of its value to inflation, but the stock market also did well during this period. Sam didn''t benefit from that run-up. He wasn''t running anywhere. He was stuck doing nothing because the combination of the myriad options and uncertainties of money, the economy, and the financial services industry had all but paralyzed him. THE POUND FOOLISH STORY Sam is hardly alone. Statistics and studies show that many of us choose not to deal or take a hands-on approach when it comes to our finances. Almost three out of four of us say our finances cause us stress on at least a monthly basis. One-third of those in relationships say money is a major source of conflict with their significant other. Fifty-five percent of people with investable assets worth between $50,000 and $250,000 say they fear outliving their retirement savings. Sixty-nine percent of us answered "never" when asked how often we balance our checking accounts. The roller coaster that is our economy only makes us even more hesitant to take control of our financial lives. In her book Pound Foolish: Exposing the Dark Side of the Personal Finance Industry, Helaine told the story of how for all too many of us wages began to stagnate and fall, even as jobs and paychecks became less secure. At the same time, almost all the income and wealth gains since the end of the Great Recession have gone to the wealthiest. We feel as if we are falling behind because, frankly, we are, often through no fault of our own. We''re convinced any financial mistake will send us on a downward spiral we won''t be able to recover from. Many of us walk around with a constant and growing sense that financial doom can arrive at any moment. So like Sam we fret about our finances but remain frozen. Money feels complicated, boring, scary, and overwhelming all at once. Who wants to wade through competing budget apps? We want to be careful financial stewards but instead get caught up playing a losing game of financial Whac-A-Mole. Desperate, we tell ourselves that someone out there must have the answer. All too many people working in the financial services industry market themselves as our friends who have special insights into the world of finance and future events. Even as we don''t trust many of the financial types we encounter, we are secretly convinced there is one person out there, one honest man or woman, who can identify exactly that magic investment for us, and guarantee that our money will grow, and that nothing will go wrong, not ever. But as Pound Foolish showed, many of our financial problems were not the result of our financial missteps. They were caused by economic trends and recessions and then compounded by the failure of financial regulators to crack down on bad behavior by those who claimed to be offering us help. Many of Pound Foolish ''s readers contacted Helaine to thank her for not laying all the blame of their financial woes on their shoulders, and just as many had a simple follow-up question: If we all need to be wary of the financial services industry, and yet we also need to be proactive about our finances, what do we do? For a long time, Helaine had no answer to that question. Fortunately, Harold did. HAROLD''S STORY Like Helaine, Harold does not work in the financial services industry. A professor at the University of Chicago and a contributor to a number of media outlets and blogs, including the Washington Post ''s Wonkblog, Harold came up with the concept of the index card not as some academic experiment but as a practical solution to the kinds of urgent financial problems many of us encounter at some point in our lives. As he explains, For most of my life, I had no real savings to speak of. I didn''t even own a home until I was forty years old. My wife, Veronica, and I were not poor by any means, but we were starting a family. Like many people our age, we never displayed much financial forward thinking or savvy. I was putting money in my retirement account but basically treading water otherwise. We rented (and subsequently missed out on a historic real estate run-up). I invested in dot-com stocks. You can guess how well that ended. We had child-care expenses. We let some costly debts accumulate. We overpaid for a nice new car when a nice used model would have worked fine. Then, as so often is the case, life happened. Around the time of my forty-first birthday, Veronica lost her mother quite suddenly. Veronica''s brother Vincent, who lives with an intellectual disability known as fragile X syndrome, was living with Veronica''s mom. The issues were sad and complicated, but the bottom line was simple. After this untimely death, Vincent needed to move in with us and our two young daughters. Vincent moved in with us and our two young daughters. Immediately, we felt the financial strain. Veronica had to leave the workforce to address Vincent''s needs. Yet even as our income fell, our expenses mounted. And mounted. Vincent had multiple hospitalizations and medical challenges, many related to his morbid obesity. The La-Z-Boy chair we bought to support his 340-pound frame cost nearly $1,000. Not long after, Veronica developed a serious heart infection that landed her in the cardiac ICU. We weren''t in financial free fall, but things were tight, and we were living a fundamentally different kind of life than we had ever expected. I needed to quickly find some real answers to right our financial life. I didn''t have much financial knowledge. I did draw upon the tools of my academic trade to help guide me as I tried to distinguish the useful advice from the useless or worse. I consulted financial advisors and read books and academic papers on managing one''s finances. Through trial and error, conversations with friends and other academics, I slowly pieced together a new financial regimen. Some was common sense. Some involved teaching myself insights that were actually well known to financial economists but underemphasized in the cacophony put out by the financial services industry. The most important advice was embarrassingly simple. It included the following: Save 10 to 20 percent of your money--or as much as you can, if you can''t put that much aside. Pay your credit card balance in full every month. * Invest in low-cost index funds. By following these rules and a handful more, we saw our financial picture begin to brighten. Life didn''t change overnight. But it did change. We had more money in the bank. We could afford to take a vacation without fearing what would become of us the next month if we encountered an unexpected home repair. We could exploit the various tax-advantaged savings offerings we could never use before. And putting money away allowed us to get lucky in the stock market; investment returns from the most recent bull mark