Can a Single Index Card Lead to Wealth and Security?

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Shakespeare once famously wrote "brevity is the soul of wit."

Does this preference for concision also apply to financial success? One prominent social scientist believes so. Harold Pollack is a University of Chicago academic. He's got the brevity part down pat.  Pollack has distilled the core lessons of financial success onto a standard size 4x6 inch index card.

Pollack believes personal finance is often too complex. His solution is a succinct summation of some very basic rules. Let's take a closer look at what Pollack prescribes.

Pay your credit card balance in full every week.

This is generally solid advice. Yet there are certain circumstances in which you'd be smart to postpone credit card payments. Are you running behind on your mortgage payments? Dangerously near default on student loans? Then your credit card payment should take a backseat.

Never buy or sell an individual security. The person across the table knows more than you about this stuff.

This is good advice for a lot of people. Professionals have a hard enough time picking winners, let alone your typical small investor. Yet there are also exceptions here, as well. Employer-based discounted stock programs are one example. There's no harm in buying the occasional stock if your portfolio is diversified and your allocation makes sense.

Save 20-percent of your money.

This bit of advice is truly unimpeachable. If you can save even more, do so.

Max out your 401k contribution.

Savvy advice, yet there's perhaps one variable to consider. If you don't have enough money saved to cover emergency expenses, you might want to wait before maxing out. You can withdraw money from your retirement account to cover an emergency. The fees and taxes, however, are often onerous.

Pay attention to fees. Avoid actively managed funds.

You can't go wrong here. Fees have a termite-like tendency to eat away at the foundation of your retirement plan. If the market slows down, they'll take an even larger bite, relatively speaking, of your returns. Actively managed funds have been proven to do no better than "set it and forget it" investing.

Maximize tax-advantaged savings vehicles such as Roth, SEP and 529 accounts.

A smart approach. Yet it's important to keep an eye on your debt load and emergency savings. 

Make your financial advisor commit to a fiduciary standard.

This means the advisor is bound to act in your best interest. Yet this isn't the industry norm, and you can find plenty of good advisors who operate without it. It's a nice bonus, though.

Promote social insurance programs to help people when things go wrong.

This one is a bit of an outlier. It's more political than financial, really. 

Buy inexpensive, well-diversified mutual funds.

Yet another great idea for long-term wealth building. Cost and performance are closely tied when it comes to mutual funds.

Priority Action 

Are you not making fast enough progress in the wealth building arena? Then grab an index card and jot down all of the ideas mentioned above -- with the possible exception of social insurance. Then review each step and ask yourself how close you are to what Pollack's suggesting. If the answer is not very, then you need to re-evaluate.

Are you saving 20-percent? Probably not. Yet this is perhaps the most critical step on the index card. Redouble your efforts to save as much as possible.

Are you minimizing fees? And putting your money into low-cost funds? If not, consider doing so immediately. These are time-tested tactics for investment success.

Sometimes personal finance simply gets bogged down in needless complexity -- and we lose sight of the basic, bedrock principles that create wealth. Pollack's index card drills down to the core of what makes us successful.

Adopt this strategy as your own, and you'll put yourself in the best possible position to succeed -- a great return for spending $1 on some index cards.

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