Blessed by the Potato

In looking for other descriptions of simple ways to plan and manage your finances, I recently read The Index Card.

The backstory is neat:

When University of Chicago professor Harold Pollack interviewed Helaine Olen, an award-winning financial journalist and the author of the bestselling Pound Foolish, he made an off­hand suggestion: everything you need to know about managing your money could fit on an index card. To prove his point, he grabbed a 4″ x 6″ card, scribbled down a list of rules, and posted a picture of the card online. The post went viral.

An early version of the card is available online at many places, including this story at NPR. The final book tweaked things a bit, but from a quick note surprisingly little changed.

I love the idea of a card like this: a simple set of guiding principles, presented in a really simple way (even the medium of the index card helps reinforce the idea that this shouldn’t be too scary).

However, I can’t say I’d recommend the book for Canadian readers: beyond the real basics of paying off your credit card every month, most of the book is really geared to Americans. With lots of focus on 401(k) plans, 30-year mortgages, and health insurance woes, big portions of this book don’t carry over well across the border. I also wasn’t a fan of the third person voice shifting between the two co-authors. “While working on Pound Foolish, Helaine… Since publishing Pound Foolish, Helaine has sat through… When at the University of Chicago, Harold…”

But let’s move beyond the book to focus on the concept of the index card.

There are lots of things you could include in a high-level summary or set of guiding principles that fit on an index card. And you might build a card differently depending on whether you’re trying to create one for yourself (a la the One-Page Financial Plan), or create a general one to hand out to university students as they graduate or even the public at large.

What specific items to include (and which to exclude), and how to set up such a card is up for a lot of thought and debate. For example, the eponymous index card that Harold made had “pay your credit card balance in full”, but that came after a bunch of stuff on investing and saving. If you’re already saving and investing, do you need that credit card advice, or can it be assumed? If you need to spell out paying off your credit card, shouldn’t it be item #1? And if you have to spell out how credit cards work, do you also need something about car loans? Same with investing: if you already have a point about investing in low-cost index funds, do you need a separate one about not investing in individual stocks? His card also had something political but nothing about donating to The Princess Margaret Cancer Foundation and other charities, which to some people is more important.

There are lots of ways to try to tweak that original card, or to set out to make your own.

Here’s where you need to know your audience: what are the important things to highlight and spell out, and what can be assumed or implied? This is a lot easier if you’re writing a card for yourself than if you’re trying to make the perfect generic card.

Then I think a really good idea is to remember what index cards were originally for and build that in. For those of you who are too young to remember (and those who don’t have an antique card catalogue in your living room to help remind you), before computerized databases and indexing, meta-information about books and other materials at the library was kept on index cards. So you could flip through a stack of index cards to find something you were looking for, then that would point you to the long-from material (a book or file somewhere). Your index card can do just that too: you can write it down on an actual card or use Word or Google Docs to write it out, then link to more information somewhere else. Then if you have a point to make and it’s debatable whether it’s a stand-alone point or really a sub-element of another point, you can include it in the detailed breakdown linked.

So your short summary of personal finance principles can fit on one small piece of cardstock, demonstrating that it’s not all that complicated and that you can do it. But you can link to the more detailed practical information you’ll need from time to time to actually follow and implement those principles. I did something of the sort with the reading guide, but you can set your index card up to link to your own shorter, more relevant summaries.

Here’s how I would set up a generic index card:

1. Understand why this is important to you. [References: Sandi’s Spanish River talks, posts, One-Page Financial Plan [sic], Wealthing Like Rabbits]
2. Get out of debt, and stay out of debt. [pay off credit cards, debt blogs, Gail Vaz Oxlade books, etc]
3. Create a budget, and live below your means. [budgeting tools, different approaches, more books, rent vs buy resource, cars and other big-ticket item resources]
4. Have an emergency fund and disaster-proof your life. [resources on emergency funds, insurance, Stop Over-Thinking Your Money chapter]
5. Plan for retirement, even if you love your job. [resources]
6. Invest for the future in low-cost, broadly diversified funds, using employer matching, TFSAs, RRSPs, etc. [Value of Simple, Practical Investing Course, other resources]
7. Automate as much as possible to circumvent bad behaviour and improve odds of success [resources on behavioural finance, creating processes, paying yourself first, etc.]
8. Get help when you need it from people working for your best interest [directory, other resources]

And just like nearly every review of The Index Card suggests changes to the card Harold originally created, this generic card has a lot of room for personalization and discussion & debate. For example, I assumed a lot of things could just be folded under “create a budget”, which otherwise might be rich points of discussion and education on their own. I didn’t mention taxes anywhere, nor pensions or retirement income, but maybe a generic card should include “file your taxes every year”. Nothing about sharing money with a spouse, educating your kids, or paying financial literacy forward, though those could also get top billing depending on the audience. And I could include an ur-point about financial literacy: it’s important, and it’s up to you to learn enough to protect yourself and get by in this world.

What would you include on your own card?