The Index Card of Financial Rules

[lorawilliams]

Someone just posted on the Fat Wallet Community on Facebook (the group for listeners of the Fat Wallet Show podcast) about a book called The Index Card by Harold Pollack and Helaine Olen. The concept is that all the personal financial advice you need can be written on an index card, such an interesting concept that I had to investigate.

Here’s the rules from the original index card:

• Max your 401(k) or equivalent employee contribution.
• Buy inexpensive, well-diversified mutual funds such as Vanguard Target 20xx funds.
• Never buy or sell an individual security. The person on the other side of the table knows more than you do about this stuff.
• Save 20% of your money.
• Pay your credit card balance in full every month.
• Maximize tax-advantaged savings vehicles like Roth, SEP and 529 accounts.
• Pay attention to fees. Avoid actively managed funds.
• Make financial advisors commit to the fiduciary standard.
• Promote social insurance programs to help people when things go wrong.

Let’s translate that to South African:

• Max your Retirement Annuity or equivalent employee contribution/pension plan.
• Buy inexpensive, well-diversified index funds such as the Satrix MSCI World ETF.
• Never buy or sell an individual security/share. The person on the other side of the table knows more than you do about this stuff.
• Save 20% of your money.
• Pay your credit card balance in full every month.
• Maximize tax-advantaged savings vehicles like a Tax-Free Investment account.
• Pay attention to fees. Avoid actively managed funds.
• Make financial advisors commit to the fiduciary standard.
• Promote social insurance programs to help people when things go wrong.

What do you guys think? Am I correct in changing mutual funds (unit trusts) to ETFs (index funds)? What other tax-advantaged vehicles can we use here? What would you add or remove from these basic financial rules? Had anyone read this book and can expand on any of the points?

 

[cigartigher]

@lorawilliams Great read! Thanks for sharing.

 

[colahyde]

@lorawilliams This is a great resource. Should be stickied at the top of the subreddit.

 

[marebear]

@lorawilliams #1 would exceed #4 and leave little room for #6. Also #7 might contradict #1?

I'm saving 30%, but it's hard to increase that to a higher percentage and it means I'm only saving about 50% to #1 (RA & work employee pension plan) and then the rest split between TFSA/Emergency Fund/Other investments.

 

[lorawilliams]

@marebear It's true that employee pension plans are too often convoluted plans with managers-on-managers-on-managers and fees-on-fees-on-fees. An independent financial adviser who signs a company up to an Allan Gray fund which invests in a Coronation fund which invests in a bunch of other mutual funds which buy a bunch of shares, and each party takes its cut.

Luckily, the matched contributions from the company often counteract these fees, but as I tell my brother, put in the max they'll match, and put the rest of your 27.5% or whatever in a private RA. Don't blindly hand your hard-earned money over to your company and hope for the best.

Congrats on reaching a 30% savings rate though, that's incredible.

 

[delad3]

@lorawilliams In the South African context there should be more rules about debt.