The Dilbert Guide to Finance – Way of the Weasel
There are over 25,000 book on Amazon for sale on the subject of Investing alone. Books that say buy these stocks, or those; some stocks, some bonds; buy when down and buy when up. And then the chartists, oh the chartists and their neverending talk of watching the graphs to determine when to buy and when to sell. Oh and I forgot about the psychology of the markets and/or the humans involved in trying to determine when to buy and when to sell. 25,000 books, all with a different approach of how to handle the investing side of personal finance.
But most of us just want something simple that we can do and then leave it alone to pursue other interests. Most of us could care less about anything but "is my money safe and is it growing?" Nothing more, nothing less. All of the talk about what Europe is doing, how the Yen affects American dollars, or what your local politician may or may not be doing to harm your retirement.
Enter just one chapter from Dilbert and the Way of the Weasel. Chapter 7 of this book pretty much sums up all you need to do to engage and satisfy your own basic personal finance needs. Just 8 steps is all you need to worry about and just 8 steps are all that's necessary as long as you want. Simple and easy, and taken one step at a time, they will get you where you want to be:
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1) Make a will - Whatever assets you do have, make sure they are protected and sent to the correct beneficiaries when you die.
2) Pay off those credit cards - Instead of paying yourself, you are paying someone else by holding credit card debt. No investing unless those are gone, buddy!
3) Get term life insurance - This is really only true if you have a family to support or would like to provide for parents or sisters at your untimely demise. So it can be skipped if you don't have anyone to worry about after your death.
4) Contribute to your 401(k) - Even in 2013, most companies still match a certain percentage so hit that point and move on to number 5 below. It's free money that you are missing out on if you don't contribute. Even if your company doesn't match, still do this because of the tax benefits of contributing before taxes. The maximum on 401(k) contributions is $17,000 in 2013. It's okay if you just want to go to the maximum your employer contributes and continue to 5 below.
5) Fund your IRA - Whether Roth or Traditional, fund your IRA up to the maximum of $5,500 (in 2013). If you've accomplished all 4 of the above, or have done the minimum on 401(k), then maximize your IRA.
6) Buy a house if you want a house and can afford it - Most of us made this step 1 right? Well for 20-somethings or those that haven't bought a house, step 6 is where this goes, if you can afford it. There are tax benefits to owning a house, but there are also downsides. Things break in houses and you have to fix them, so only buy the house at this late stage. Skip to 7 if you don't want one.
7) Put Six Months' Expenses in a Money Market - Money markets are just savings accounts with better interest rates. While you have maximized your taxes and retirement above, step 7 is to help protect those in the event you lose your employment. Most people tap the 401(k) and IRA when they lose their job, but we don't want to do that, at least not for the first several months to a year.
8) Money Left? Invest it in 70% stocks and 30% bonds - This is your growth portfolio, where you take a bit more risk. So the 70% of your money will be in a stock index fund (maybe the ETF SPY would be great). And then 30% of your money into bonds (BND is a good ETF). I mention ETF'S because you can get a good index fund commission free from TDAmeritrade or Schwab right now. As long as you don't sell in the first 30 days, it stays commission free. And index ETF's have very small expense ratios, so more of your money stays in the fund.
Scott Adams makes this list far easier to read through in the Way of the Weasel, so pick up a copy if you would like. But it's so simple, the list can be found easily with any Google search. The most likely version that will stay online for the longest is at Marketwatch.com.