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Hi everyone, this is Dan Thompson with wise money tools. Welcome to our video slash podcast today. You know, I always like to look around and see what's going on out there in YouTube land. And I saw kind of an interesting video. It was a I believe it was a PBS special on what is called the index card method. And what it did is essentially was all the financial advice you'll ever need on 1 index card. And there were basically 10 steps that you would write on this index card. And supposedly where the idea was that if you achieve these 10 steps, that's all the financial planning you would need. So what I wanted to do is kind of review those steps and see how they stack up so to speak. Some of them are good, some of them makes sense for sure. Others need to be kind of discussed. So here's the list. All right. Number 1 was saved 10 to 20% of your income. Number 2, pay your credit card balance in full every single month. Number 3, max out your 401k and other retirement savings accounts. Number 4, never buy or sell individual stocks. Number 5, buy inexpensive index funds or ETF. Number 6, make sure your financial advisor commits to a fiduciary standard. Number 7, buy a home when you're financially ready. Number 8 was insurance make sure you are protected. Number 9, support the social safety net and number 10, remember the index card. Okay, so big list I know. Again, some of these things make sense, but let's just do a quick review. I don't want to go too much detail on all of them, let's just talk about this list just really quickly. Most of it's fine, obviously. But there are some things to be cautious of. So number 1, save 10 to 20% of your income. Okay, good one completely agree no-brainer. We've talked about it 100 times, right? Look, if you don't figure out a way to save some money, unless you expect some kind of inheritance. You're always gonna struggle financially, you've got to pay yourself first. And remember, that's part of the wealth equation, y=a(1+r)x, simple equation. We'll talk about that in just a second. But when that paycheck comes in, be selfish. Pay yourself first. After all, you're the one doing all the work, you deserve something at the end of the day. So number two is pay your credit card balance in full every single month. Again, great habit to get into a no-brainer. I personally like to run things through my credit cards for all the miles, bonuses, rewards perks you get by running them through the credit card first. But I never carry a balance at the end of the month. And I've gone years, literally years without having to pay for a meal. Because one of the things I do is I convert my cash back into restaurant gift cards and also Amazon cash. Now I know there's probably better things to do with it. But it's kind of nice to just never have to pay for a restaurant meal when you go out. I've also had free airfare or upgrades to first class hotels. And as I said, I use them for Amazon cash. So lots of Amazon purchases over the years too. Now the disaster with credit cards is if you carry a balance, then you're the one paying for all the rewards and airfare miles and all the different restaurants that others who don't pay interest are getting. Those that pay interest, help pay the rewards for those that don't. Not to mention, if you pay the minimum credit cards, they're literally designed to almost never pay them off. So get them paid off, then don't use them. If you can't pay them off at the end of the month. There's really hardly anything worth having that you can't do without if you can't pay for it and have the balance of zero at the end of the month. Okay, number three was max out your 401k and other retirement savings accounts. Now, here's where me and this guy may part ways just a little bit. I understand that idea. It's saving for retirement and I'm totally on board with that. However, deferring taxes now, only to have to pay them later may not be the most prudent thing to do. So let me present it to you this way. How about if I lend you $10,000 today? Now don't worry about paying you back right now. And in 10 or 20 years, you can start to pay me back. But it's at that time that I'll tell you how much interest I'm gonna charge you. Sound like a fair deal? Well, that's really what tax deferral is. It's the idea that today, you know, your tax rate. But you're making a deal with the government, that at retirement, you're gonna be happy to pay the tax rate that the government decides on down the road. Now, with all this talk about more social programs, more benefits for people, that $2 trillion that we just racked up based on this Coronavirus. And maybe another trillion or two, do you really think your tax brackets gonna go down in the next 10, 15, 20 years. Another side to that is so many people are actually in the lowest tax bracket they're gonna be in. Let me give you an example. I was talking with a client the other day, son just getting a really good job just out of college gonna be making some good Money. But he's probably in the lowest tax bracket he'll ever be in. Yet, they want him to already start to participate in the 401k, which means he's gonna defer paying tax at, let's say, 15% to ultimately pay tax down the road it 18, 20, 25, 30, 40%, who knows what it's gonna be. The deal is, he's gonna know what his tax bracket is in 40 years. And that may or may not be a good deal for him down the road, statistically and knowing what's going on, it's probably not gonna be a good deal. He's probably better off right now getting that tax out of the way, then storing it in a place where he may never be taxed again. Now, the other side of that is the where, in other words, where the funds going. When you invest into a 401k IRA, so on and so forth with most financial advisors or with most retirement plans at companies. They're typically going into mutual funds. Now what that means is you're gonna be taking all the risk, it also means that you're gonna be paying all the fees. Now on the low side, it's estimated that 30% to as much as 50% of all you earn in those 401Ks are gonna go to fees and taxes. You know back in 2008 when that market crashed, we kind of affectionately or jokingly called 401K's 201K's because they were basically cut in half. If you've got a retirement plan and it's in mutual funds, good chance that you just lost 30% maybe even 40% of your market value just in the last month due to this Coronavirus. Hopefully you weren't retiring this month or this year because your potential income just got decimated. So although I understand his motive, which is safe, safe, safe for retirement, good thing, nothing wrong with that. The options he gives are really not all that complete. We need to hear much more of the story and find out is does it make sense to be putting money to 401Ks and IRAs and other places where I'm deferring attacks. Hoping the government's gonna treat me fairly down the road. There may be a much better place to store those funds and keep those funds tax advantaged too. Okay, number four. Number four is never buy or sell individual stocks. Now, again, I know where he's coming from, and I get it. Most people don't take the time to become good investors. And as a result, they're really speculators. And they do what I call the they get the barbershop advice then fact you know, if you've been watching me for a while, my last few videos have been about Facebook, financial advisors, right? And you can't just hear something in the barber shop or read some I'm Facebook and think you're a good investment or investor just because you jump on that. Now, because most people don't want to be speculators. What they do is use a very common tool. And it's used by financial advisors every single day. And they call it diversification. Why? Because they don't know what's gonna happen. So instead of buying two or three or five individual stocks, they end up buying bunches of stocks in mutual funds or indexes. And that also kind of ties into number five, number four, and five kind of can be talked about together. So instead of buying individual stocks, number five says, buy inexpensive index funds or ETFs. This way you own 1000 or 2000 different companies with the idea that not all of them will go out of business at the same time. Or if you buy the index of ETFs diversification supposedly keeps you safe and unharmed in market crashes. Now, quick question, do you have mutual funds? Index funds? ETFs? Did you lose any money over the last month or so? Now, wasn't diversification supposed to protect you from these losses? See, this is what really frustrates me they use this term diversification make you feel all warm and fuzzy. But in reality, if markets go against you diversification in the method that they use, it just doesn't work. So why did they do just as bad? Why is it that you're likely down 30% even though you did diversification, in other words, diversification didn't help you that much did it. And I think Warren Buffett said it best when he was asked about diversification, because he doesn't diversify all that much. And if you didn't have so much money to work with, you'd probably diversify even less than he is today. But he essentially said, diversification is for those that don't know what they're doing. So instead of learning and educating themselves, what they do is they toss money into funds and indexes and then cross their fingers. You don't take the time to learn about the company, how the management does their thing, the numbers, the P/E ratios, the revenue and all those expenses and the taxes and the debt. And by doing that, figuring out, hey, maybe this is a good company to own long term. Now, I understand barring your willingness to become a good investor. It's probably best to stick with the indexes. Now we're gonna talk about this in just a second down the on one of the other principles. But there's really no reason to pay an advisor to buy mutual funds that won't perform any better or worse than the index and by the time you pay the advisor fee, things are even worse. Which brings me to number six, but guess what I've gone over time. So we're gonna have to do number six through 10 on the next video. I don't want you to miss it, so make sure you subscribe. In the meantime, these five principles that we've talked about if you have any questions about them or thoughts about them, put your comments below any questions, shoot them to questions at wise money tools.com and I'll answer them just as quick as I can. And if you want to talk more about your specific situation, click on the time trade link below quick strategy session. And see what's going on in your financial world. Well, that's it great to have you with me on this video. I look forward to talking about number 6 through 10 on the next one. Till then, take care.