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General Financial Advice

written by Matthew Rensberry, MD MBA on 2014-09-10

Here is a collection of advice I have gathered from several sources and experiences. I am using this to also lead a teaching discussion.

Personal Finance - Notecard version:

From: Harold Pollack, Ph.D. – Professor at University of Chicago

As tweeted here.


Dave Ramsey Steps to Financial Independence:

  1. \$1000 in Emergency Savings
  2. Pay off all debt using the Debt Snowball
  3. 3 to 6 months of expenses in savings
  4. Invest 15% of household income into Roth IRAs and tax-advantaged retirement accounts
  5. College funding for children
  6. Pay off your house early
  7. Build wealth and give!

Purchasing a House:

Be sure to factor additional costs like maintenance and repair into your budget as well.

Emergency fund:

From here.

Legacy Drawer:

Organize your Legacy Drawer so a specific document can be found in 30 seconds.

Legacy Drawer contains 11 things:

  1. Cover Letter – This is simply a letter stating the purpose of the Legacy Drawer. Nothing fancy, just a way to introduce your loved ones to the contents of the drawer.
  2. Will and Estate Plans – All information pertaining to your will and estate, including names of the executor and Power of Attorney should be located in one file.
  3. Financial Account – Anything that has money in it and your name on it should be listed in the Legacy Drawer. This includes account names, amount and account numbers.
  4. Funeral Instructions – All details and specifications for funeral plans should be listed so the family can fulfill your wishes. If you are married, you need one for you and one for your spouse.
  5. Insurance Policies – All insurance information, including health, car, disability, term life, etc., should be combined into one single document for easy reference. List the type of insurance, who the policy is for, contact information and policy numbers.
  6. Important Documents – Any legal or other important documents you have should be noted in the file. This includes deeds, birth certificates, Social Security cards and titles.
  7. Legacy Letters – Since the intention behind the Legacy Drawer is to keep your legacy going after you've passed away, it's a great idea to include letters to your loved ones.
  8. Monthly Budget – Add a copy of your written budget, so your spouse or loved ones know how to operate your household once you're gone. This will help your family keep track of bills and focus on more important things.
  9. Tax Returns – Keeping tax returns in your Legacy Drawer is like an insurance policy for yourself in the event that you get audited from the IRS. Hopefully you never have to pull them out, but if you do, at least you are prepared.
  10. Safe Deposit Box – Keep copies of all your Legacy Drawer papers in a safe deposit box—you can never be too careful. Include information in your Legacy Drawer on where your safe deposit box is and who has access to it.
  11. Passwords – Write down all passwords, combinations, usernames and PIN numbers. This information allows your loved ones access to any documents, money or information that is left when you are gone.

From Dave Ramsey.

Insurance recommendations:

Life insurance – You should have 8 to 10 times your yearly income set aside in a term life policy

Long-term disability – You can usually get it the cheapest through your workplace. This is important: 30% of the workforce today will become disabled before they retire. With the average monthly benefit from Social Security disability being \$1,004 a month, you can’t afford to not have this type of insurance.

Homeowner’s/Renter’s Insurance – Get a homeowner’s policy that has guaranteed replacement costs. Renter’s insurance is cheap and worth it when you need it

Health Insurance – Get it. It’s the law!

Long-Term Care Insurance – Not necessary until age 60 – for nursing home care

More on Life Insurance:

  1. Term policies (or pure insurance coverage)
    1. Buy enough term coverage to fill your needs. (8 to 10 times your yearly income)
    2. Match the term of the policy to your needs. (the policy should last as long as it takes for your dependents to leave the nest or for your retirement income to start)
    3. Buy when you're healthy. (Older people and those not in the best of health pay steeply higher rates for life insurance - so buy as early as you can, but don't buy until you have dependents.)
  2. Many variants of whole life (which combine an investment product with pure term insurance and build cash value)
    1. Insurance is sold, not bought.

Agents sell the vast majority of life policies written in the U.S. because the life insurance industry has a vested interest in pushing high-commission (and high-profit) whole-life policies.

Policies with an investment component cost many times more than term policies. As a result, many people who buy whole life often cannot afford an adequate face value, leaving themselves underinsured.

The returns quoted by the agent are simply guesses – not reality. Some companies keep these guesses of future returns on the high side to attract more buyers.

There are better places to invest – and without the high commissions of whole-life policies.

The problem is that you are paying for a steadily declining amount of coverage, as you pay down your mortgage. It's best to include the mortgage payments in your calculations when determining how much coverage you need.


529 Plans

There are two distinct types of 529 plans:

  1. Prepaid plans
    • Prepaid plans are less common (only 11 states have them including FL), but they usually mean that you are directly “pre-paying” for tuition at public universities within that state by buying tuition credits at that school. These credits are based on current tuition rates and thus are a bargain if your child is going to go to that school.
  2. Savings plans
    • Savings plan 529s are much more common. They function much like a savings account, where you deposit money, it grows within that account, and then you can withdraw it to spend on educational purposes.


Money Tools/Websites:

Budgeting (Mint)

Investing (FutureAdvisor)

Taxes (TurboTax)

Banking (Simple Bank)

General advice (Dave Ramsey)

General advice (Clark Howard)

General advice (The Simple Dollar)

General advice (Get Rich Slowly)

General advice (Nerd Wallet)

General advice (Practical Money Skills)

Buffet quotes:

“Rule No.1: Never lose money. Rule No.2: Never forget rule No.1”. --Warren Buffet

"Be an Investor, Not a Trader" --Warren Buffet

“Wall Street makes money on activity. You make money on inactivity.” --Warren Buffet