Book Review: The Index Card
Can you condense your financial plan to an index card? If your finances aren’t simple, you greatly increase the chances of failure. Keep it simple and learn how to build and maintain a simple investing strategy with The Index Card by Helaine Olen.
Book Summary Notes: The Index Card
- Simplicity is key to being able to stay the course long term. If something is simple then it’s very achievable, hard to mess up and if somehow you did screw up, it’s easy to get back on the horse.
- Almost half (47%) of Americans surveyed said they wouldn’t be able to come up with $400 to cover an emergency if it happened. By automating and simplifying your finances you can escape this statistic. What they don’t say, but is heavily implicated by that number is that; a $400 or greater unexpected expense would have a significant chance of ruining some families. Getting on top of your finances is not just something you do for yourself but for everyone in your life.
- One of the best ways to begin to save is to switch from using your cards to cash. Pay cash for everything! There is a psychological element here that is well documented, it hurts to hand over your money each time you spend it. Using a card as an intermediary alleviates that pain and that’s the way that credit card companies would prefer it.
- Another strategy that is popular online is taking this cash system a step further with the ‘envelope method’. In this you withdraw cash at the start of your pay period and you allocated your cash between a few different physical envelopes. You might for example split your money between groceries, mortgage and petrol for instance. Say you allocate $400 to your groceries envelope, well every time you go to the store you take the money from that envelope with you and once it’s gone, it’s gone. This often forces you to be more thoughtful with how you spend and plan ahead. It also amplifies the pain you feel handing over that cash, knowing how limited it is for you.
- Make your savings automatic. Set up a direct debit or transfer for immediately after you get paid to take some money and put it into a savings account for yourself. Budget with what you have left after saving, instead of saving after you budget.
- Never pay the minimum on your credit card payments, these are designed to keep you in debt and making repayments for sometimes as much as the next 30 years. Get these balances paid off as soon as you can. If you can pay off your credit card each month in full then keep doing that, if you can’t or you have a habit of overspending some months then just get rid of it.
- When you begin paying off debts, list them out on paper from the largest balance to the smallest. Once you’ve done that begin allocating the minimum to every single debt and focus on the lowest balance debt with your remaining funds. Get them paid off one by one and add the amount you used to pay to any previous bills to pay down the next even faster.
- People tend to spend the most on only a few categories: home, food and travel.
- If it’s been a while since you’ve shopped around for a cheaper mortgage now is the time! Make sure if your purchasing a house to save enough (typically 20%) to avoid the extra fees associated with LMI. If you’ve recently paid your loan down past this 20% level then call your bank and get the LMI removed.
- Have you considered trying to cut your shopping/food expenses? Can you buy in bulk or hunt for specials? Can you simplify some recipes or swap expensive ingredients or whole recipes for cheaper alternatives? Remember this doesn’t have to be forever, just get your spending and buying under control first.
- How do you get around? Could your family simplify its car situation? Can you go from 2 cars to 1? Have you got the best deals on insurance? If not nows the time to ring around. If you have an expensive car or carry a large loan against it consider downsizing to something far more affordable.
- Are you contributing to your retirement funds? The biggest advantage that younger people have is time. Make sure you use it!
