10 Rules for Personal Finance
By Bob Moeller
WEAC Member Benefits
June 2002
Financial
Planning Seminars
Achieving
Financial Independence
This past year I have written many articles, given many seminars on financial
planning, and met individually with hundreds of members, helping them
with their financial questions. It becomes clear that the secrets to financial
success are not overly numerous, and not overly complicated. I sincerely
believe that if you put into practice the thoughts below, you will be
in charge of your financial life. Let’s call this “The 10 Simple
Truisms of Controlling and Benefiting From Your Financial Decisions.”
Repeat these to yourself regularly, and especially after talking to a
financial sales person.
- In stock market investing, I am not going to “beat” the
market, typically designated by the S&P 500 Index. I won’t
even try. Why? Of the thousands of professionally managed mutual funds,
only a few beat the index over the past 15 years. Rather, I will make
a simple investing rule. All of my stock market investing will be in
some form of low-cost, no-sales charge index funds or non-index funds
that have indeed beat the 500 index over the past 10 years – not
three years or five years. The main index fund I invest in will be the
Vanguard 500 Index Fund, or the Fidelity 500 Index Fund. Other index
funds may be considered for diversity, but they must be no-sales charge,
low-management fee funds.
- As much as possible, my investing will be in the form of tax-advantaged
investments, particularly 403b tax-deferred annuities, Roth IRAs, and
401k’s for my spouse, if applicable. I will invest through these
only in no-load mutual funds as much as possible. I will understand
what my marginal tax bracket is. I will start or increase my investments
now, not later.
- I will not meet with any life insurance agents regarding my investments.
The only life insurance company investment products I will even consider
will be those offered with no commissions, no agents. I will totally
understand any life insurance company products before I invest. (In
the next issue I am actually going to suggest that some of you over
age 59 consider a life insurance company product to increase your money
market yields dramatically. Of course, it will entail no agents, no
commissions, no mortality and expense charges, and no withdrawal penalties.)
- I will always pay off my credit cards each month, and try not to
carry any high-cost debt. I will review my debt, including my home mortgage,
regularly to make sure I am doing the best I can do.
- I will review my life insurance regularly, buying only term insurance,
and shopping for the best rates on that term insurance.
- I will not worry about my State of Wisconsin retirement plan. I will
consider getting advanced degrees prior to retirement, the earlier the
better, because I realize the extra pay will increase my average salary
for retirement purposes. I will look at my school master agreement to
see how much better off I would be at retirement if I moved to the right
on the salary schedule even though I may be older than most college
students.
- I will make sure I discuss our family’s financial plans with
my spouse. Both of us need to be in agreement and understand what decisions
need to be made. As necessary, we will get information on our parents’
finances and make suggestions to them regarding estate planning, trusts,
etc. I can get free information and forms from WEAC.
- If the grandparents or we want to fund our children’s college
some day, we will check out the Section 529 college savings plans because
the tax advantages are good. Particularly, we will check into the Wisconsin
EdVest Program directly at 1-888-338-3789 or www.edvest.com. We will
not pay a broker to do this for us.
- I will try to understand the basics of how I spend money and make
a knowing decision if this is how I want to continue.
- I will understand that in order to make successful business-type
investments such as real estate, collectibles, etc., I have to know
the market in order to be successful. Before I invest large sums in
what may be more than a hobby, I will realistically look at possible
outcomes of my investment and ask experts for advice.
Posted May 31, 2002