Ten Rules - Part 2

In the first part of this series, we explored five essential rules for personal finance, inspired by “The Index Card: Why Personal Finance Doesn't Have to Be Complicated” by Helaine Olen and Harold Pollack. The rules in the blog spoke to things like spending less than we earn, paying off credit card debt, save 10-20% of our income, augmenting contributions to retirement investments, and creating an emergency fund — all laying the groundwork for financial stability and success.

Now, let’s delve into the next five rules that will help you further simplify your financial life and build a solid foundation for the future.

Rule 6: Buy inexpensive, well-diversified mutual funds

Investing is often seen as a complex and intimidating process, but it doesn’t have to be. Olen and Pollack recommend buying inexpensive, well-diversified investment funds (such as mutual funds, unit trusts, or ETFs) as a straightforward approach to growing your wealth. Diversified funds spread your investments across various assets, reducing risk while providing the potential for steady growth. By focusing on low-cost options, such as index funds, you also minimize fees that can erode your returns over time. Remember, the goal isn’t to chase the highest returns but to build a balanced, long-term investment strategy that aligns with your financial goals.

Rule 7: Choose a Financial Adviser who commits to a fiduciary standard

When seeking professional financial advice, it’s crucial to work with someone who prioritizes your best interests. A fiduciary is legally obligated to act in their clients’ best interest, which contrasts with advisers who may recommend products or strategies based on commissions or incentives. By choosing a fiduciary advisor, you ensure that the guidance you receive is tailored to your financial well-being, not someone else’s profits. Don’t hesitate to ask what standards we adhere to, it’s a crucial step in protecting your financial future.

Rule 8: Protect yourself with adequate risk cover

Insurance is a critical component of financial planning, serving as a safety net against life’s unexpected events. Whether it’s health insurance, life insurance, or disability coverage, having the right policies in place can prevent financial disaster. Olen and Pollack discuss the importance of ensuring you have adequate coverage to protect yourself and your loved ones. This doesn’t mean over-insuring or buying every policy available, but rather thoughtfully considering your risks and securing appropriate protection.

Rule 9: Advocate for strong social safety nets

Social safety nets, including programs like pensions, unemployment benefits, healthcare, and other forms of social insurance, are crucial for ensuring financial stability and security across all stages of life. While the specific programs may vary from country to country—ranging from Social Security in the U.S. to state pensions in the UK, or unemployment insurance in countries like South Africa, Germany and Australia—the underlying principle is the same: these systems provide a critical foundation for economic stability and support during times of need.

Olen and Pollack emphasize the importance of understanding and supporting these social safety nets within your own country. This can be done through informed voting, civic engagement, and staying informed about the policies that affect these programs. Although it might feel like these systems are beyond your immediate influence, they play a crucial role in the broader economic health that benefits everyone. By advocating for strong, well-funded social safety nets, you contribute to a more stable and equitable society, which in turn, supports your own financial well-being and that of future generations.

Rule 10: Remember the importance of community

Finally, personal finance is not just about individual success but also about contributing to and benefiting from a healthy community. Engaging with your community—whether by supporting local businesses, volunteering, or simply being an active participant—can lead to a richer, more meaningful life.

Financial security is important, but so is the well-being of the society in which we live. By balancing personal financial goals with a commitment to the common good, you create a legacy of both prosperity and positive impact.

Remember, mastering personal finance doesn’t require complex strategies or advanced knowledge—it’s about sticking to the basics, making informed decisions, and aligning your financial behavior with your long-term goals. By incorporating these ten rules into your financial planning, you can simplify your approach, reduce stress, and ultimately achieve the financial independence and security you deserve.