Planning

Money 101: 27 Financial Tips to Live By

Money 101: 27 Financial Tips to Live By :: Mint.com/blog

Did you hear about the professor who wrote all the financial advice you’ll ever need onto one index card?

If not, take a look. It’s remarkably accurate and comprehensive. Usually I spend 1000 words or more trying to get one idea across. This week, I’m going to make every sentence count.

Here’s the maximum amount of financial advice I can offer in a single column.

(Incidentally, I was also inspired by Morgan Housel’s Motley Fool column, 43 Thoughts About Investing and the Economy.)

If you can’t find something to disagree with among these 27 tips, I’m not trying hard enough.

Saving

There is no shame in using tricks to get yourself to save money. Use multiple savings accounts; put your credit card in the freezer; set up automated transfers. Whatever works for you is fine.

Think of your next raise as an opportunity to save more, not an opportunity to spend more.

The best way to make saving a habit isn’t skipping lattes; it’s keeping your housing and transportation expenses low.

Credit

Credit cards are useful, dangerous power tools. Using them frequently makes it more likely that you’ll cut your thumb off. A lot of sad stories begin, “I always paid off my credit card every month, until…”

Check your free annual credit reports for errors.

Credit scores are simpler than you think. If you pay your bills on time, you’ll have a good credit score. If you don’t, you won’t.

Insurance

If someone depends on your income, buy life insurance—boring term life insurance, not whole or universal.

Insure against financial disasters, not annoyances. Buy renters or homeowner’s insurance, car insurance, disability insurance, and health insurance.

By the same token, never buy extended warranties, smartphone insurance, travel insurance, or payment protection plans.

Investing

It’s possible to beat the market, but it’s so unlikely, you should never try. Invest in inexpensive index funds or target-date funds.

Max out your tax-advantaged accounts (401(k), IRA) before investing in a taxable account.

Don’t invest in anything that promises impressive returns with little or no risk.

College

Student loans are awful. If you’re a middle-class family, plan to send your kids to a community college, in-state public university, military academy, or elite private college.

The rest are unaffordable without massive debt—and don’t provide a better education.

Retirement saving comes before college saving. If you can’t afford to save for college, don’t.

Even if you can’t afford to save now, open a 529 college savings plan for grandparents or other family members to contribute to.

Buying a house

Aggressively paying down a mortgage is usually better than investing.

The best measure of your readiness to buy a house is the size of your down payment. Be wary of making a down payment under 20%, even through a government loan program.

Stretching to buy more house than you can afford leads to painful and avoidable financial misery.

Taxes

Again, the best way to save on taxes is to contribute to your 401(k) or other retirement plan. Clever tax-avoidance schemes are often illegal and almost always stupid.

Your tax rate will probably drop in retirement, even if taxes go up overall.

If you always hire someone to do your taxes, try doing it yourself (with tax software) once. If you always do it yourself, try hiring someone. Either way, you might save money or learn something.

Family matters

Couples have assorted ways of merging and managing their finances. It’s a practical issue, not a moral one.

Having said that, couples who intend to spent retirement together should look at their investment portfolio as a single unit.

Forcing kids to save or donate part of their allowance deprives them of the opportunity to learn worthwhile lessons.

Grab bag

“Don’t try to keep up with the Joneses” sounds like the most facile advice.

In practice, it’s among the most difficult: it means voluntarily living in a way different from most of your peer group. At least some of the time, you’ll feel deprived and your peers will feel judged.

Luck plays a bigger part in our financial success or failure than most of us want to believe. Forgetting this is bad karma. Nearly everyone should own US savings bonds.

What would you add? Let’s hear your financial wisdom at its pithiest.

Matthew Amster-Burton is a personal finance columnist at Mint.com. Find him on Twitter @Mint_Mamster.