Monday, October 16, 2006

9 Simple Points of Investing for Ordinary People

From the Big Picture Blog (see link in sidebar).

1. Make a will

2 .Pay off your credit cards

3. Get term life insurance if you have a family to support

4. Fund your 401k to the maximum

5. Fund your IRA to the maximum

6. Buy a house if you want to live in a house and can afford it

7. Put six months worth of expenses in a money-market account

8. Take whatever money is left over and invest 70% in a stock index fund and 30% in a bond fund through any discount broker and never touch it until retirement

9. If any of this confuses you, or you have something special going on (retirement, college planning, tax issues), hire a fee-based financial planner, not one who charges a percentage of your portfolio


Teri said...

Mine would be a bit different:

1) Take 10% of what you make and put it into savings, right off the top. This should be something fairly liquid as this is your emergency fund. Don't try anything fancy with it. A simple savings account or a short term CD will do.

2) Keep adding to it until you have enough to pay for your current expenses out of the last month's income (tip of the hat to

3)Buy a little extra food every month, until you've built up at least a month's supply of food. More would be better, of course. This means that you'll need to learn how to cook from scratch and how to store food properly. It may also lead to things like learning how to garden and can food.

4)Store some water, at least a couple of days worth. More is better, of course.

5)Get out of debt and stay out of debt. This will likely mean that you will have to cut back on things. That's okay. You may find that having time to spend with family and friends is worth cutting back on long hours spent to earn money to pay for toys.

6)Give part of what you earn to whatever charity or organization you want. 10% would be preferable but give whatever you can.

7)Save for retirement--I can't be a lot of help here but my advice would be to keep it simple. Invest only in things you understand. Don't go chasing big returns. Don't just park your money in some money market fund and never make adjustments. Read some financial pages or blogs. Read some contrarian financial blogs like Don't tap into your retirement funds for things like buying a house or sending someone to college.

8)Owning a house can be a great thing, but realize that there are heavy costs associated with it. Always buy less house than you can afford. Property taxes always go up. A job loss can put you at risk. Own a house because you want to live in it, not as an investment. Plan to pay it off someday and truly own it. If you can't do that, you are better off renting. Or you might go truly cheap and buy an RV or mobile home to live in.

9)Don't try to keep up with the Joneses. Folks in this country used to live pretty modest lifestyles. We now seem to think that we can afford big screen televisions on 1976 wages. Don't fall for this. Weigh each purchase carefully. Don't give in to impulse spending.

10) Plan for a rainy day. It used to be that folks understood that bad things happen and that you need to put aside enough funds to prepare. Nowadays, we just use credit. If you can't pay for it today, what makes you think you can pay for it later? Things break, kids outgrow clothes. Plan ahead.

OkieLawyer said...

Good comment, Teri. Thanks.