Title: "Money Rules: The Simple Path to Lifelong Security"
Author: Jean Chatzky
Publisher: Rodale Inc., 2012; 128 pages; $12.99.
Little about money seems simple. When you get to the point in life where you realize the importance of being thoughtful and proactive in your financial matters, it’s easy to get swallowed up in the nitty-gritty of interest rates, indexes and investment vehicles. It’s also easy, in turn, to get overwhelmed.
But popular personal finance expert Jean Chatzky wants to make the point that wise money management doesn’t have to be complex or convoluted. Rather, she argues in her new book, "Money Rules: The Simple Path to Lifelong Security," living your financial life by a core set of broad principles can position you for true, lasting prosperity just as effectively as trying to keep track of loads of intricate guidelines, ratios and rules — maybe even more.
Here’s a handful of Chatzky’s adages:
1. "Financial plans don’t fail people. People fail to plan." Add all the hullabaloo about which investment vehicle to use, how to rebalance and what diversification strategies make sense to the innate human fear of losing money, and you might think that it takes a lot of work to have a financial plan that minimizes the risk of failure. Chatzky begs to differ, arguing that the much more common issue is that people fail to plan for their future finances. She cites data showing that people with detailed visions for the future, and financial plans for getting there, simply save more than those without them.
2. "Good debt is usually cheaper." Chatzky devotes one of Money Rules’ seven parts to helping readers discern good debt from bad, and helping them manage all of their indebtedness. One rule of thumb is that "good debt" generally comes at a much lower interest rate and may even have other advantages, like tax deductibility, when compared with "bad debt." That would put affordable mortgages, auto loans and student loans in the "good" bucket, and consumer and credit card debt in the "bad" one. The rest of the section gives guidelines for deciding whether and how much it makes sense to even get into good debt.
3. "Don’t shop angry/sad/hungry." Anger, Chatzky says, makes you more optimistic and less risk averse. Sadness and disappointment can create the craving to fill your emotional voids — with stuff! And hunger? Eating samples, drinking wine, and being hungry generally makes you spend more money not just on food, but on everything! So Chatzky advises us to take the age-old wisdom about avoiding grocery shopping while hungry even further, and to simply avoid shopping while under the influence of any of these physical and emotional states.
4. "The biggest threat to your financial security is your health." Chatzky says medical debt is the leading cause of personal bankruptcy in the U.S. She encourages readers to think hard to see if they can conjure up any examples of people they know who have had a heart problem or cancer scare, just to prove the point that most of us do know someone, which means these issues are very real and, unfortunately, not very rare. Accordingly, Chatzky insists that readers obtain health insurance by any means necessary, even if all they can afford is a low-cost policy that covers only catastrophic, worst-case scenarios.
5. "Be fearful when others are greedy and greedy when others are fearful." Quoting the Oracle of Omaha, Warren Buffett himself, Chatzky advises in several of her rules to avoid jumping on investment bandwagons thinking that you’ll score big. Rather, adopting Buffett’s contrarian approach is much more likely to lead to investment success. And this rule certainly bears out in the realm of real estate. Think of how cheap homes became during the recession, and how those who bought at the scary bottom are in a good position now that things are on the upswing.
Money Rules is as simple in presentation as its content might suggest. You won’t find all the charts, bullet points and decision-trees that have become de rigueur in finance books. What you will find is a set of under 100 plain-spoken rules, in barely more than 100 pages, to help you get your finances started off on the right foot or get them back on track if they’ve been derailed.