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If Only It Were as Simple as an Index Card!

Last week a client of mine sent me an article on Times.com, called “Everything You Need to Know About Money on One Index Card.” The article featured an interview with Harold Pollack, a University of Chicago public policy professor whose new book, The Index Card, discusses why personal finance doesn’t have to be so complicated.

Pollack says the idea of jotting a series of rules on an index card came during a video chat with personal finance writer Helaine Olen, with whom he eventually wrote the book. According to NPR, Pollack said the best personal advice “can fit on a 3-by-5 index card and is available for free in the library.”

My client wanted to know if Professor Pollack’s rules were appropriate to share with his kids. Probably, he was also wondering, “Is it really that simple?”

The truth is, these rules offer a good general guide. I mean, you can’t go wrong with saving money, reducing debt, or maxing out your retirement plan, right? It’s like Mom and apple pie – nobody’s going to argue with that!

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I would, however, argue with the order of Pollack’s rules.

For example, I’d move “save 20 percent of your money” (later revised by Pollack to “save 10-20 percent of your money”) to the number one slot. That’s because, if you start saving early, you can be sure you save enough for at least a reasonable retirement. Next, I’d pay down credit card debt, because paying down debt forces people to think a bit more about budgeting.

Having a fiduciary relationship with a financial adviser would be my third recommendation, but I’d like to add to this point. In seeking a fiduciary adviser, clients should make sure their adviser considers any financial and investment strategies in conjunction with their tax situation. Most people lose money when they consider these strategies in a vacuum, and not every adviser has the capability of integrating these important factors. When in doubt, ask!

Pollack’s remaining recommendations should also take the individual’s tax situation into account. For example, people in a lower tax bracket may be better off saving in a Roth before saving in their 401k plan (the salary deferral may save a little tax, but it’s possible someone would be better off long-term by paying that little tax now and not paying ANY tax forever). Pollack’s recommendation for saving to a 529 plan is also a unique situation that is VERY client-specific. 

In short, everybody’s situation is different, and while it’s great to have some “rules of thumb,” personal finance can really be a bit more complex than it appears on the surface. Even Pollack admits that sometimes, people need more than the basics. That’s how his index card became a 240-page book, and why having a trusted adviser – one who places your interests first – can ultimately make personal finance simpler for you.

Have you read The Index Card yet? What did you think?

Photo courtesy: Harold Pollack. 

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