Five Easy Things to Do to Secure Your Financial Future


Let’s face it, while some people love to go spend hours reading about investing and following the nuances of the markets, most people really don’t want to spend any more time worrying about their finances than they have to.  They pay their bills and keep their receipts for taxes, but they really don’t want to worry about tracking their money.

Unfortunately, bad things happen to people everyday who don’t do some minimal things to prepare for their future and properly utilize the money they have coming in.  They end up losing their home when they get laid off from a job for a few months.  They find themselves buried in credit card debt with no way to dig themselves out.  Their children end up taking out tens of thousands of dollars in student loans or they end up at retirement age unable physically to work anymore and face living in poverty.  Worst of all, they lose a loved one unexpectedly and need to change their lives radically because of the loss of income.

Today I thought I would give five simple things you can do to make your financial life better.  None of these take a great deal of time, but even if you do nothing else, just do these five things and you’ll be better off than 90% of the people out there.

1.  Get 20-year level term life insurance for you and your spouse.  The worst thing that can happen to a family is for the primary breadwinner to die unexpectedly leaving the spouse to find a job after years out of the workforce while also trying to pay for childcare and all of the other expenses on their own.  The next worst thing is for the spouse who takes care of the children to die, forcing the working spouse to find a way to pay for childcare and all of the thousands of other things the caretaker spouse would do.  For only $200-300 per year a healthy 30-year old can get level term insurance of $500,000 to a million dollars.  Should the unthinkable happen, this money can be used to pay off the house and then the rest invested to replace the income of the individual who died, in the case of the working spouse, or hire a nanny, if it is the caregiver who dies.  While life won’t be the same, at least things will be the taken care of financially.  Get a policy that provides at least 10 times your income today!

2.  Sign up for the 401k and contribute at least 15% of your pay.  Studies have shown that those who put away 22% of their income (including any company match) for retirement will end up with enough to make it through retirement comfortably almost all of the time.  Start from the beginning putting money away and you won’t ever miss it.  Wait a few years and you’ll find that all of the money will be spoken for and it will be much more difficult.  As far as investing goes, just distribute it among large and small cap funds, with perhaps 10% or so in an income fund like a REIT or a bond fund and you’ll be just fine.  Choose the funds with the lowest costs you can find.  If you want to goose your return a little, rebalance it once a year so that you are buying more of funds that are down and selling off some of the funds that are up.

3.  Save up a 20% down payment and limit your house payment to 25% of your take home pay on a 15 year fixed mortgage.  Putting down a 20% down payment will take thousands of dollars in mortgage insurance fees off of your bill.  A 15 year fixed loan will get you a better interest rate and mean that you will have paid off your home about the time the kids are starting college.  If you don’t have kids, that will give you a lot of extra money to put towards retirement, invest, or just enjoy in your forties and fifties.

4.  Buy four-year old used cars for cash.  Invest the money you lose in depreciation on new cars, even subtracting out a little extra money for repairs, and you can retire a millionaire just from the investments.  Today’s cars will easily run reliably for 12 years or more, and even if you sell the car at eight years you’ll be saving thousands on depreciation.  Pay cash instead of taking out a loan and you’ll save another million dollars over a lifetime.  If you aren’t a millionaire, you can’t afford a new car even if you can afford the payments.

5.  Put away 10% of your income each month.  Start out putting money into a cash account until you have at least $10,000 in cash.  After that, send the excess into an index fund and spend no more than 5% of the value of the fund each year for anything but emergencies.  Do this and you’ll have the cash you need to pay for new used cars, medical emergencies, new air conditioners, and other emergencies.  You’ll also have money for vacations.  By the time you get into your forties you’ll have several thousand dollars extra each year to enhance your lifestyle.  You’ll be able to do everything other people are doing without taking on the debt that they are.

Anyone have other easy tips?

Please contact me via vtsioriginal@yahoo.com or leave a comment.

Follow me on Twitter to get news about new articles and find out what I’m investing in.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

6 comments

  1. Just wanted to say this post is solid gold. These shouldn’t even be optional.

    If you follow these, you will literally never have to worry about money

  2. Ok Mr. perfect world. Let’s just break this down. On the average, the math just doesn’t work until you’re making over $100,000. I understand all these circumstances are ideal, but lets look at the facts.

    You’re telling me to pay no more than 25% of TAKE HOME pay toward my house. For the average mortgage in the US today, a monthly payment is $1300 not including the taxes or insurance. BUT, that’s on a 30 year loan, so if we go with your 15 year idea, we’re talking more like $2000+ a month. But we’re smart investors, so lets just say you can get a place for $1300/month on a 15 year loan (because if we go with the $2000, its gonna make your advice look that much more absurd). So, adding home insurance and property taxes, lets clock that at a $1700 payment (probably not even high enough, but we’ll go with it). If I do the backward math for limiting this to 25% of take home pay, my take home pay better be at least $81,600 a year. Now add in income taxes… this take-home pay would put you in the 15% bracket for federal on everything over roughly $18,000, and lets just use 5% for state and I’ll subtract $32,000 for exemptions and deductions which is reasonable especially since you’re not deducting much interest on that 15 year low mortgage rate (plus i like easy math on $50,000 taxable income) and we’re at $9100 in fed/state taxes, or $90,700 pre tax pay. 7.65% for Medicare/SS and that’s $98,200. Add in your medical/dental/vision and that spectacular life insurance policy and we’re easily at a $110,000 salary. Heck, if I’m doing a Roth 401k for at least 15% (after all, this blog is written toward the young guy and Roth is definitely the way to go over traditional 401k when you’re young), and 10% is personal contribution with a 5% employer match (which is way better than most peoples company would really match, but ill give you the benefit of the doubt) the Roth would be post tax meaning its on top of that $110,000. So with that 10%, we’ve now reached a $122,000 salary.

    I did take some short cuts with pre and post tax money to make the math easy, but nonetheless, you’re definitely still making over $100,000 if you can actually follow all 5 of these points. Wouldn’t we all love to be in that place, but unfortunately, we are not. So please, when you’re giving advice to the “small” investor, lets try to keep in mind the “small” salary that person is making and get our heads out of the pie in the sky.

    Average US household income is less than $50,000. So lets start there and set some more realistic goals. Make your house payment no more than 25% gross pay (not take home). This means the average family can afford $1050 a month or a mortgage of maybe $800. Definitely make sure you have 20% down before buying a house (great advice), but 90% of Americans would never own a home unless they did a 30 year mortgage. So average Joe can probably buy a $230,000 home with current low interest rates if he has the $46,000 down and does 30 years. Thats pretty reasonable. Now, lets just try to see if we can do 5% toward a 401k and 5% toward liquid savings (probably realistic as opposed to 15 and 10). I like the life insurance advice, but it is an emergency fund so let’s be real and just put this out there… there’s no need to be a millionaire if your spouse dies! Make sure you can pay off the house (so you don’t lose it) and pay for funeral stuff, and expect that you’ll have to go back to work. A $250,000 policy should be plenty adequate for that based on that $184,000 mortgage. Sure you probably won’t replace 100% of the breadwinner’s salary right away, but you also won’t have a mortgage to worry about, so you don’t have to immediately make as much as they were.

    Anyways, I could go on, but those are my two cents. Sorry to be harsh, but there is just NO WAY anyone on a typical household budget is gonna be able to do all of this. Sorry, it’s just not even close to real world advice for the “small investor”.

    If I could add one piece of advice to your list. NEVER waste your money on a private college education. Start your life with no student loan debt and you’ll be better off in so many ways. There are so many places where you can get an amazing education without paying a quarter million dollars. And let’s be honest, for the most part, your degree gets you your first job. Beyond that, your experience is way more valuable. Go to Cal Poly. Forget Stanford. The people who go there aren’t as smart as they look. After all, their very first financial decision as an adult will probably put them in the hole for the next 15 years.

    • I agree that on the “average budget,” most people will spend more than 25% of their take-home pay on their mortgage and hit few if any of the goals I’ve set. But then again, the “average” person doesn’t retire with several million dollars in investments, no debt, and a paid-for house.

      Try a different calculation. Take someone with a $50,000 income, call them “Joe Average,” and have him put 40% of their take-home pay towards a mortgage, subtract off other expenses, then have him invest the remaining at 12% return. Once he pays off his mortgage in 30 years, have him start investing the mortgage payment at 12% return. Then have a second guy, “Crazy Fred,” and have him put 25% of his take-home against a home (it may be an apartment for a while or a small, $100,000 house) and then invest 10% of his take-home (what he would have been spending on a mortgage) and earn an average of 12% per year on that investment. Have Crazy Fred put 50% down for a $180,000 home when he has the money, then continue investing the difference between what he would be paying for a mortgage if he had done what Joe Average had done and what he did. Tell me what each individual has at 40, 50, 60, and 70 years of age.

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