Written by Harold Pollack and Helaine Olen

In 2013, University of Chicago Professor Harold Pollack hosted a casual online video chat with author Helaine Olen. In the video, Pollack and Olen dig into some of the points Olen made in her book, Pound Foolish. They agreed that most people are given bad advice from financial advisors and that the best financial advice doesn’t have to be extensive or complicated. It can fit on one index card.

Shortly after the interview, Pollack went online and posted an image of a simple index card that listed what he thought were the most essential principles of personal finance. And the post went viral. It captured the attention of academics, economists and newsgroups. In response, Pollack and Olen decided to team up and expand upon their index card idea in a book titled, The Index Card: Why Personal Finance Doesn’t Have to Be Complicated. The book provides further explanation of the index card’s ten principles. The authors’ goals were to help people become more confident, to help them learn simple rules and timeless guidelines and to free them from fear about not knowing what to do.

Principle one is to strive to save ­20% of your income. Pollack and Olen recognize that savings is difficult due to wages stagnation, inflation, income inequality and rising costs of healthcare and education. Additionally, the American culture of overspending makes saving less enticing. Pollack and Olen state that priority number one is to create a savings fund for emergencies. This is the foundation of the spending plan. The authors encourage readers to start saving by tracking their spending for three months then confront their spending by evaluating all non­-negotiable, non-­discretionary expenses. After evaluating, a realistic spending and savings plan can be developed. The key to harnessing the power of this spending plan is to view it differently from a traditional, fixed budget. Realistically, expenses vary from month to month. The spending plan should be thought of like a wave that varies.

Pollack and Olen share additional tips such as inspecting all monthly bills, getting explanations on all fees and charges, using cash instead of credit cards, making savings automatic and slowly working toward a 20% savings rate, even if that means only saving 1%initially.

Principle two is to pay credit cards in full every month. The average household credit card debt in America in 2013 was $7,000. Pollack and Olen tell readers to pay more than the minimum payment and to pay off highest interest rate debts first. They tell readers to try to negotiate lower interest rates, but to be wary of debt consolidation offers. Pollack and Olen discuss the differences between federal and private student loans. For those readers who are in debt and want to start investing, the authors tell us eliminating debt can be considered a risk free investment.

Principle three is to max out 401(k) and other tax advantage accounts. The authors cite retirement savings as the most important financial necessity after an emergency fund. “There are no do-­overs when it comes to retirement savings,” they say. Self­-funded retirement is essential now that pensions and government programs are rare. The book illustrates the impact of starting retirement savings early and explains the difference between various types of retirement accounts. The authors stress that money should never be removed from retirement accounts unless there are absolutely no other options.

Principle four is to never buy or sell individual stocks. Under this principle, Pollack and Olen tell readers to “be boring and methodical” and to not engage in day trading. They say it should come as a relief to know that day trading and speculative investing, which require a lot of time and research, are not what is needed to get ahead. Their next principle discusses how using low cost index funds is the more successful approach.

Principle five is to buy inexpensive and well-diversified mutual funds and ETFs. The authors provide an example of how fees on a mutual fund impact a lump sum over time. They discuss how to easily determine asset allocation by subtracting your age from 110 and using that number as the percentage to invest in stocks. They also say that managing your portfolio shouldn’t take much time to set up and maintain. A portfolio can be checked and refreshed once a year around tax time.

Principle six is to use the fiduciary standard. Pollack and Olen define the difference between the fiduciary standard and the suitability standard. Simply asking financial advisors, “Do you follow  the fiduciary standard at all times?”, can help you avoid someone who could be motivated by commissions instead of your best interests. Fee-only advisors are the best bet, say they authors, and “If you want good financial advice, you have to pay for it.” Although even when working with an advisor who works to the fiduciary standard, you still must do your due diligence by looking up the advisor’s records and history.

Principle seven is to buy a home when you’re ready. Buying a home should be about buying a home, not an investment. The authors reveal that the S&P 500 outperforms the housing market over time and housing should not be a speculative investment by flipping homes and renting real estate. Real estate is usually a highly leveraged investment, which therefore makes it a risky investment. In the best case scenario, homes can be an expensive automatic savings plan with expense ratios that are incredibly high. Pollack and Olen provide helpful rules such as only a third of take home pay should be spent on housing, put 20% down on mortgages and avoid ARMs or interest only mortgages. They also provide a home buying checklist.

Principle eight is to make sure you’re protected by insurance. The authors tell readers to avoid whole life and cash value policies and to go for 30-year term life policies instead. They stress the importance of the frequently overlooked disability insurance and provide rules such as use a high deductible and obtain liability coverage that is twice your net worth. Pollack and Olen also discuss the specifics of health insurance and annuities.

Principle nine is to support the social safety net. In this section, the authors reveal their perspective on the importance of government intervention, the main solution Olen presents in her other book, Pound Foolish. They state that 96% of Americans have turned to government help or subsidies in the some way, such as tax credits, aid programs and unemployment insurance. They ask readers to show support to Social Security and Medicare as our first and last insurer. “Acting together,” they say, “we can help each other overcome risks we can’t handle alone.”

The final principle is to remember the simplicity of the index card. You don’t have to be a financial wiz to take control of your finances. Do not fall victim to the numerous schemes and promises of the financial services industry. Keep your index card readily visible as a reminder that the health and success of your personal finances doesn’t need the intervention of high pressure financial salespeople.

I really enjoyed reading The Index Card, because Pollack and Olen present their information in a very straightforward, easy to digest manner. They aren’t condescending or emotional. The authors dish out helpful advice with humor, which is a refreshing change from the often dry financial advice, we hear. They define terms, which could leave novice readers otherwise confused such as APR, Chapter 7 Bankruptcy, and debt consolidation. The resources they recommend are usually nonprofits, although Vanguard is mentioned several times, which made me wonder if they were compensated by Vanguard to do so.

I would recommend this book to anyone who is just diving into personal finance for the first time. It is the most realistic and reliable beginners guide to personal finance that I’ve read yet. I think it should be required reading for high school graduates. I would also recommend the book to older individuals who are overwhelmed and intimidated by their finances.

Corinne McKenna is a military spouse fellow and can be reached at mckennacorrinne@gmail.com.

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