Scott Adams is a wonderful resource. Not only is Dilbert endlessly fascinating to denizens of the cubicle such as myself, but his books will sometimes contain real pearls of wisdom. Here’s a good set of money ideas from Dilbert and the Way of the Weasel (HarperCollins Publishers, 2002). I remember reading it several years ago. And now it’s reappeared in the investment newsletter I get every quarter from Vanguard.
The story’s pretty interesting. Adams was going to write a book on investing. But then after doing a bunch of research, he realized everything could be boiled down to just a few simple rules. He lost his book, but he shared what he learned with us.
Everything You Need to Know About Money
- Make a will.
- Pay off your credit cards.
- Get term life insurance if you have a family to support.
- Fund your 401(k) to the maximum.
- Fund your IRA to the maximum.
- Buy a house if you want to live in a house and you can afford it.
- Put six months’ expenses in a money market fund.
- 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.
- 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.
That’s it. And I must say, having read some articles and books about investing, this covers the bulk of what they contain. The Vanguard newsletter article goes on to quote several experts expressing much approval of this scheme. They especially like the bit about paying off credit cards. One did say that many people would have a hard time fully funding their retirement accounts. I guess the adjustment for them would be, “Fund your 401(k) as much as you’re able.”
Am I following Adams’ plan? I’m sorta following it. I developed my personal retirement strategies before reading Adams and I’m pretty comfortable with how that’s going. I do have a will and I pay of my credit cards. I’m allergic to paying the huge credit-card interest rates unless I absolutely have to. For the rest I do a modified version, but I’ve definitely considered each of the subjects he touches on (IRA, 401(k), house, savings to cover expenses in an emergency).
One Other Idea – Making a Budget
In terms of day to day living, there’s one other thing I do that helps me a lot. I make an annual budget and plan how my expenses will match up to what I expect to make during the year. Then from time to time I compare how my actual spending compares to my budget. This is very important in helping me be able to pay off my credit cards each month. And it’s important in helping figure out how much I can save in my 401(k) each year.
I learned something interesting and important in the process. When I keep track of all my spending, it’s not the little things that really affect my monthly bottom line. It’s the big ticket items. When I’ve added up the money I spend on movies, books, odd little purchases as I’m wandering through stores, they never total enough to really make a big impact on my money. But every so often I buy something extravagant - a big screen tv, a trip to Europe, a new potters wheel. Those are the things that really cut into my savings account. The good news is that while it’s very hard to keep track of the small things, it’s very easy to pay attention to the big ones. So in making my budget, I pay particular attention to what big stuff I’m going to buy and where the money’s coming from to cover it.