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THE QUICK AND DIRTY GUIDE TO FINANCIAL HAPPINESS

April 07, 2007

A longtime reader posted this comment yesterday:

When it comes to retirement I'm an idiot. I get the feeling my wife and I are going to be so in debt. Especially because I won't have health insurance when I retire. Do I need to employ you? My attorney makes no mention of retirement for my wife and I, but he does my taxes, and is well aware of our financial situation. I get the feeling he doesn't make suggestions because he wants to be paid.

I'm not technically a financial planner, but most people can get by quite well without one. The basics are simple. The hard part is actually exercising the discipline to do it. Scott Adams, creator of Dilbert, distills the basics in a wonderful little list:

Everything you need to know about financial planning*

* Make a will.
* Pay off your credit cards.
* Get term life insurance if you have a family to support.
* Fund your 401(k) to the maximum.
* Fund your IRA to the maximum.
* Buy a house if you want to live in a house and you can afford it.
* Put six months’ expenses in a money market fund.
* Take whatever money is left over and invest 70% in a stock index fund and 30% in a bond fund through any discount broker and never touch it until retirement.

If any of this confuses you, or you have something special going on (retirement, college planning, tax issues) hire a fee-based financial planner, not one who charges a percentage of your portfolio.

*From Dilbert and the Way of the Weasel, 2002

I would add three items to the Dilbert list:

* Make sure you have health insurance. If you don't have it through work, get a high-deductible plan and fund a health savings account. If you can afford to, let the funds accumulate in the HSA and pay health costs out of after-tax funds.

* Get good disability insurance.

* If you are saving for a child's education, do it in a Section 529 plan or Educational Savings Account. If you live in Iowa, use the College Savings Iowa plan and get a deduction on your state income tax return to boot.

If you want an actual book on this, buy The Random Walk Guide to Investing: Ten Rules for Financial Success.

If you are already in a big hole and need to dig out first, contact a reputable credit counseling outfit.

The ideas are simple. Changing habits to use the ideas is the hard part, but it gets much easier once you've done it for a little while.

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