Bogleheads

[fcalpine]

I am looking at collecting some of the most salient nuggets of financial conventional wisdom to one day pass along to my children.

I'm not an aspiring author, but though there might be some value in collecting the important financial"rules". I'm especially looking knowledge gained over a life time of investing from the older folks here, that as a young guy will take me 30 years to lear for me to learn myself:

Things like:

- Develop an emergency fund for unexpected life events
- Pay your self first
- Max out your tax advantage retirement accounts
- Be wary of sales people; people can't expected to tell you the truth when their pay day depends on them not telling you the truth
- Boom & Busts will come and go, learn to recognize them and learn to take advantage of them

This might turn into a wiki posting at some point in the future.

**I also tried to search several times on various key words to see if something like this existed on the forums, but couldn't find anything***

[Taylor Larimore]

[baw703916]

I came up with the following set of principles back when I was 15 or so.

1. Always pay cash.
2. Never run out.

(OK, I cheated a little on college tuition and a house)

Brad
_________________
I don't foresee any Black Swans appearing in the future

[bob90245]

During the process of writing the Boglehead's Retirement Planning book, there was a thread where 'gems' were solicited and collected from the forum members.

[Gekko]

STEPS TO BUILDING WEALTH

1. LIQUIDATE ALL DEBT - Liquidate all bad debt and become debt-free. Start paying off all loans and credit card debts now. If you're in a hole, stop digging and get out. Debt reduces your monthly cash flow. When you have payments, you lose control of your income. The bank owns a part of it, and you are thus a slave to them. Once you are debt-free, you regain control of your most powerful wealth-building tool, which is your income. And, you have freed yourself from the bank. Debt is slavery. Debt = risk. The more debt you have, the more risk you have in your life. Personal finance is mostly behavior and has very little to do with math.
2. KEEP YOUR OVERHEAD LOW - Keep your monthly overhead expenses low. Avoid and minimize recurrent monthly expenses. Slash recurring charges. Go through your monthly bills and eliminate even the smallest recurring item that does not provide value. Watch out for and fight against "bill creep" where your bills slowly and insidiously creep up on you. Every extra fee is your enemy. Cut your cash outflow. Do you really need all of those premium cable channels and tiers and all of those telephone calling features? Do you even need a landline if you already have a cell phone? Reduce or eliminate them now and apply the saved monthly payments to either your debt reduction or your investments and savings. No matter where you are in your financial life cycle, eliminating waste from your budget generates opportunities to create value. Redirecting wasted or weak-value dollars to your monthly savings will get you there a lot faster. If you need an incentive to get started, an understanding of the time value of money can be a powerful motivator for detecting waste and poor value in your discretionary expenses. To get more value for your money, you should give your discretionary expenses a close audit. Cable TV might be a high-value item in your household, but you can probably find other areas where cuts are a no-brainer. Be on the lookout for waste and poor value - hidden charges on your phone bill, subscriptions to magazines you rarely read, fees for the fitness club you don't use, or any expense that gives you minimal value relative to its cost. Don't leak and bleed money! Play with a financial calculator to estimate the future value of those dollars if converted to an investment savings strategy. Or if your savings are sufficient, figure out the present value of those dollars and spend them on something that really delivers that value. Curb your spending. Negotiate/Demand lower cable/phone bills via competition. Cable and Phone bills are negotiable, so haggle. Strangely, you may not necessarily mind these kinds of cutting-back episodes. There is an odd pleasure from being a tightwad, if only to demonstrate your ability to "defeat" rampant consumerism and ignore the incessant advertising that is injected into our daily lives. Suddenly it's in vogue to be cheap, although for many this is out of necessity rather than choice. All of these "little" expenses really add up to big savings! Control your expenses. Always keep your taxes, fees, and maintenance costs low. It's not what you make - it's what you keep. Don't be stupid with your money.
3. PAY CASH - Pay cash for everything and get out/stay out of debt. It's OK to use a Credit Card if you want the float, reward points, and convenience, but be sure that you're responsible and that you pay the balance off in full every month – which is essentially "paying cash" anyway. If you can't pay cash for something, you can't afford it. A house and an education are the obvious exceptions. But - be conservative with your mortgage commitment (Put a minimum of 20% down and don't exceed a mortgage of 2x your annual salary). Pay cash for your house if you can. Don't buy too much house. Live in a "right-sized" house. Borrow, at the most, 80% loan-to-value (LTV) on a 15-year fixed-rate conventional mortgage where the total payment is no more than 1/4 of your take home pay. Your monthly payment on a 15-year, fixed-rate conventional, conforming mortgage should be no more than 1/4 of your monthly take home pay. Your mortgage payments should not exceed 25% of your net income. Buying a bigger house isn't an investment. Rather, it is a lifestyle choice – it's a consumption choice - and it comes with a brutally large price tag. Get a 15 or 30 year traditional mortgage with a fixed rate. Make extra payments on your mortgage towards principal every month. When your mortgage is paid off you have peace of mind and can sleep good at night. Never under any circumstances buy a house until all of the following four conditions are met: 1. Debt-free. 2. Fully-funded emergency fund. 3. Minimum 20% down payment above and beyond emergency fund. 4. Payment no more than 1/4 of total household monthly take home pay on a 15-year, fixed-rate conventional mortgage. Pay cash if you can. Be cautious of buying a second home. In resort areas - given the number of days people actually use their second home - staying at the Ritz for $500 a night could be a much better deal. Do the math; it's not pretty. Don't have one house too many. Think twice about owning more than one house, given the costs associated with maintaining a home. These costs are often underestimated. Don't house yourself into a corner. Don't ever take out home equity loans to pay for improvements or toys - always pay cash. Buy your house and own it for a long time. Don't have more kids than you can afford. Pick a college with reasonable tuition costs. The name of the college isn't as important as what you do while you're there and what you do when you get out. Help your kids out but don't sacrifice and jeopardize your own secure retirement for them. Make your kids pay for some of their own college costs so that they appreciate it and work hard. Buy (Don't Lease - Leasing is the most expensive way to drive a car) a highly reliable, highly durable, highly dependable, low maintenance, low cost of ownership, quality car (Toyota or Lexus or Honda or Acura) new or slightly used and keep it for a long time (10+ Years). Once you have your house and cars paid for you can save obscene amounts of money. Don't get caught up in revolving debt or monthly payments. Consumer debt is not good. Remember that you never make money by paying interest. Don't spend more than you make. Live within your means. Get ahead of the curve! Spend like there IS a tomorrow. It doesn't matter how good your investments are if you spend too much.
4. KEEP LOTS OF CASH ON HAND - Keep some cash equal to at least 1-2 years gross salary in a low cost, liquid, high yield money market fund (Vanguard Prime Money Market Fund or Tax Free Money Market Fund) or high yield FDIC insured checking account. Always have a big cash cushion. Automate your savings. Systematically and automatically add to it every month and never touch it. Automatically reinvest all interest/dividends. Increase the monthly amount invested at least annually. This cash is for emergencies only or to use to buy long-term assets (house). Prepare for the inevitable "rainy day" because someday it will pour! Dig your well before you're thirsty. "Piggy bank" savings will make your life a whole lot easier if you suddenly find yourself jobless. Prepare to "hunker down" if you have to! Spend like there is a tomorrow. It doesn't matter how good your investments are if you spend too much. You need to have plenty of liquid cash to get you through any possible prolonged personal or global economic crisis. Cash quiets the nerves.
5. PAY YOURSELF FIRST AND PUT YOURSELF ON AUTOPILOT - Systematically and automatically invest a fixed, large percentage (minimum 10%) of your gross income every month into a low cost (no load, low expense ratio), diversified, tax efficient, U.S. stock index mutual fund (Vanguard Index 500 Fund or Vanguard Total Stock Market Index Fund) and don't touch it for at least 10 years. Dollar Cost Average and Pay Yourself First. Increase the amount invested at least annually. Automatically reinvest all dividends and capital gains. Be a steady buyer, not a rapid buyer. Don't invest it all at once. Don't dump a big chunk of money into the market all at one time - gradually average it in over a long period on a monthly basis in order to hedge against a sudden market downturn. Take small regular bites over a long period of time. Avoid big moves. If you buy or sell heavily in one shot you're taking a needless risk. And waiting for the right moment to make your move is futile. You probably won't catch the bottom or the peak anyway. If a market trend has much further to run, then what's the rush? And if it doesn't … what's the rush? Make sure your total stock allocation of your entire portfolio does not exceed the number 100 minus your age. Put some in a Bond Fund (Vanguard Total Bond Fund or Vanguard Municipal Bond Fund) and put the rest into a Money Market. Rebalance your portfolio if needed to get to your desired allocation if drifts off by more than 10%. If you only have $1,000 to invest, buy the Vanguard STAR Fund. If you have less that $1,000 to start, save it up in a bank account until you do. Keep your total portfolio of stocks allocation percentage at no more than 100 minus your age. Plan, allocate, buy, hold, rebalance and stay the course. Create a plan and a blueprint and follow it! Slowly switch more to cash and bonds as you get older. Cash and bonds are the "shock absorbers" for your portfolio during rough times. Put your money in "Buckets" based on the time horizon of when you'll need it. 0-5 Years = Cash, 5-10 Years = Bonds, 10+ Years = Stocks.
6. MAX OUT YOUR 401K - Max out your retirement plan (401K and/or IRA) contributions and direct them to a low cost diversified stock index mutual fund. Never withdraw the funds until retirement. Slowly move to cash and bonds as you get older.
7. KEEP IT SIMPLE - Stay the course and Keep it Simple. Stick to your strategy and follow your plan. Ignore the so-called "experts" and tune out all of the outside noise. Don't watch CNBC - it will make you stupid and poor. Realize that most analysts, brokers, advisors, and other "stock pickers" are usually wrong, biased, self-interested, or self-serving and beware that they all have their own hidden agenda. Don't blindly follow financial services people's recommendations - recognize that their agenda may be different from yours. Remember that no one can consistently time and outsmart the market and no one has a crystal ball and no one knows for sure where the market or any particular stock is going in the short-term. If their forecast was right in the past it was probably luck and not skill. Beware of market forecasts – they are often wrong. Ignore the short-term movements of the market and think long-term. Take advantage of market downturns by buying more shares. Stay diversified and don't chase "hot" momentum sectors or stocks. Stick with diversified funds vs. Betting on Individual stocks. There's too much concentrated risks in Individual stocks and it's difficult to dollar cost average into them. Follow your plan and not the herd. Don't try to time or beat the market. Don't try to be a stock trader and out-trade the market. It's gambling and you will ultimately lose. Buy and Hold. Increase your monthly investment amounts during market downturns. Super Dollar Cost Average during downturns. Investing and wealth accumulation is a marathon, not a sprint. Keep it simple. You only need just a few good mutual funds - you don't need twenty. You don't need anything fancy or exotic. Fancy and exotic will cost you money. The best plan is a simple plan. Simpler is better. Stick with the simple, straightforward approach that's cheap, unlikely to blow up in your face, and is proven to work. Assume a 4% Safe Withdrawal Rate. Don't pay advisor/management fees. Loads, fees, and high expense ratios will kill your returns! 1% doesn't sound like a lot but it really adds up!!! And, during an investor's withdrawal period, it represents 25% of the normal "safe withdrawal rate" of 4%! Slow and steady wins the race, and consistency matters. Get-rich-quick never wins. Slowly switch to cash and bonds as you get older. Building wealth is a marathon, not a sprint.
8. SET GOALS AND TRACK YOUR PROGRESS - Set realistic net worth goals and track your historical progress. Are you getting ahead or falling behind? Create a Net Worth Statement and update it regularly. Take pride and satisfaction in your financial accomplishment as you see your money grow.
9. DON'T PRICE YOUR LIFESTYLE FOR PERFECTION - Don't price your lifestyle for perfection. Establish a lifestyle based upon that which you can control....just because you made $100K, $250K, or even $500K last year, don't count on it occurring again, instead figure on what you can pretty much guarantee...that should be the lifestyle gauge. You have to plan for things to happen in your future that may not be ideal. You can't price perfection into any part of your future. Pricing perfection into your future can be extremely dangerous. Don't assume that everything will always go like it had always gone. Anytime you price perfection into your future, it generally ends up being a mistake. There is almost always going to be some sort of setback. Expect it, but plan for it and be versatile enough that you are able to make adjustments. If you don't have a contingency plan, then any setback will catch you unaware and unprepared. This is where you can learn from the past but not dwell on it. It is inevitable that at some point things will happen to you again that you don't expect. You should prepare for those things now. Don't be paranoid - be prepared. Preparation means you don't lose sleep over the future. Being paranoid means you lose sleep because of the future. Having your finances in order allows you to weather the storm when bad things happen to you. Set yourself up so that you can "hunker down" for a while if you have to. It's rarely the "Savers" that get hurt. Before you know it, the landscape can change and the ground right underneath your feet can shift. Constantly build up your "F you" fund. You want to set yourself up financially to be in a position to tell everyone to go F themselves if you have to. It's a cold hard world out there with a lot of scumbags. They can't hurt you if you have money in the bank and no debt. This is true freedom. The road will get bumpy and you will hit turbulence – expect it and prepare for it. The more cash you have and the less debt you have will help cushion you.
10. DON'T TRY TO KEEP UP WITH THE JONESES - Think long and hard about your purchases - especially the big ones. Ask yourself - Is this really a need or is it just a want? Why am I really buying this? How will this affect my financial future? Don't chase status symbols. Ignore the impulse to constantly upgrade and rush out to buy the newest, "latest and greatest" model. Ignore the need for Immediate Gratification. Repair before you replace. Financial success demands some sacrifice. Find a balance. Absurd, conspicuous consumption is a sucker's game. Trying to "Keep up with The Joneses" and be the "Big Shot" is a sucker's game. The "Big Shot Complex" will kill you. Realize that the debt-ridden, over-leveraged, wanton spender "wannabes" around you are financially self-destructing themselves. Realize that financial independence is much more important than displaying high social status. Plan, save, and pay cash for your big purchases rather than running out and immediately buying them. Choose your luxuries wisely and sparingly. Don't buy things you don't need. Be selectively extravagant and prudently frugal. You have to pick your shots. Frugality is your best investment. Live within your means and save and invest your money. Understand that money equals security and power. Don't throw your money away, but when something is important to you, buy the BEST. Spend extravagantly on the things you love, and cut costs mercilessly on the things you don't. Go for high quality - not necessarily high price. A big purchase is a commitment so buy exactly what you want and buy the best because you will be committed to that product for a long to so you should be happy with it and have no regrets. But - Celebrate saving! Life is about experiences, not about material possessions. Possessions are a prison. Experiences make us happier than possessions. The initial joy of acquiring a new object, such as a new car, fades over time as we become accustomed to seeing it every day. Experiences, on the other hand, continue to provide happiness through memories long after the event occurred. A sense of relatedness to others - getting closer to friends and family - is why experiences generate more happiness. When you spend money on life experiences, whether you also take someone with you or buy an extra ticket or whatever, most of our life experiences involve other individuals. You fulfill your need for social bonding while having these experiences. Another reason for increased happiness in experiences is that we feel a greater sense of vitality or "being alive" during the experience and in reflection. What's really important is not how much you make, but how much you keep. Understand that real wealth equals freedom, security, and power. Being a Millionaire is a lot better than just trying to look like one. Being stuck on the treadmill in the rat race, living paycheck to paycheck isn't intelligent. Don't make yourself a slave trapped to your job/debt/expenses and at their mercy. Strive to be Bulletproof and Liquid. You might want to/have to peel back from work someday! It's nice to have the option. No, you "can't take it with you", but being old and poor is no fun. Life on the Bread Line is no fun. You could die tomorrow but you could also live to 100. Don't underestimate your life expectancy. Your degree of wealth will directly affect your future quality of life. Social Security may not be around to help you. Money is power, and when you can pay cash all kinds of doors open. Save and invest or else you will be forever poor. If you try to impress other people, you'll lose the wealth race. Practice reverse snobbery. Express contempt for people who mindlessly buy things. This has two benefits: It raises the act of not buying things to a lofty moral height, from which you can denigrate others, and you get to enjoy the irony of simultaneously being a snob while making fun of other snobs. Go to shopping malls and department stores and briefly let your materialistic impulses loose. Try on a bunch of sweaters and choose three or four. Add a few ties or scarves. Walk around for a few minutes enjoying your stack of loot. Then put it back on the shelf and walk out. Think about how unnecessary that stuff is. You probably already have something just like it. What a relief to not have more junk around the house. Get satisfaction from money saved, not money spent. Immediately invest it when you don't spend it. Write yourself a check to your investment account. Train yourself to not waste money and don't waste anything else either. Get into good habits and keep them going.
11. BE A COMPULSIVE SAVER - Be a compulsive and relentless saver. Save when you can, buy when you must. Save every opportunity you can get. The right time to save is always now. Over-save. If you come into a big "windfall" or "found money" save most if not all of it. Dump a big chunk of it into the money market fund and then go treat yourself by spending a small piece (1-5%) of the sum on something you really want. Can't save? "Can't" means "Won't". Skip stuff you buy out of habit to save money and be more eco-friendly.
12. WORK TO MAXIMIZE YOUR INCOME - Work to maximize your income every day. First, get yourself in a position to be successful. Then, work at being a success. Push to increase your income! Keep your skills and education up to date. Work hard and ask for raises. Pick an occupation or business that you enjoy but that pays well and is in demand. Watch out for the opportunity costs of not working for even short periods of time. Stay employed at all costs!
13. PROTECT YOUR ASSETS AND INCOME - Protect your assets and income from disaster. You only need to get rich once. You're either in the get rich business or the stay rich business. Run away from "get rich quick schemes" or risky new business ventures as fast as you can no matter how good you think they sound. There is no magic bullet. If it sounds too good to be true it probably is! Don't "play" the market with stocks tips, "inside information" or go on margin or try to flip condos. Invest with good mutual funds for the long-term. Do not speculate. If you absolutely must speculate, do it only with money that you can afford and are prepared and are willing to lose and limit it to no more than 1% of your entire liquid net worth. Limit your losses and cut your winnings. Get married only once - Divorces are very expensive. Get a prenuptial agreement just in case. Buy an Umbrella Personal Liability insurance policy at least equal to the greater of your net worth or $1M to put a buffer and a shield between your assets and income and somebody that might try to sue you. Unfortunately, we live in a very litigious society. You can't totally avoid risk, but you can minimize it and protect yourself against it. Make sure you have enough insurance. If something were to happen today to your house, car or health, would you have enough insurance to cover it? Make sure you have enough coverage, particularly Disability insurance that would provide income should an injury prevent you from being able to work. Buy Term Life Insurance (Not Whole Life) if you have a family to protect. Buy enough coverage so that it will pay off the mortgage, pay for your children's education costs, and other family living expenses in the event that you're not here tomorrow. Ask yourself - If I'm gone tomorrow, how much will my family reasonably need to survive over the years? A starting point rule of thumb is an amount equal to about 5-7 times your annual income. You can reduce the amount over time as your family grows, your liabilities and dependents decrease, and you get older. Buy Term and save and invest the difference. Save for the unexpected, insure for the catastrophe. Make sure your Cash is invested with high quality institutions and if buying CDs make sure your balance is fully FDIC insured – including leaving room for all new interest payments. Protect yourself BEFORE you need it because if you wait until you do it will be too late.
14. DON'T EVER LEND MONEY OR COSIGN ON A LOAN - Don't ever lend anyone money – not even friends or family. If you absolutely must do it - only lend what you can afford to lose. Consider it a gift and assume that you'll never see it again. "Neither a borrower nor a lender be." And NEVER EVER under any circumstances cosign on a loan!
15. ENJOY LIFE - Enjoy life, live well, stay healthy, reward and treat yourself, treat others, be generous, help others, appreciate life, have no regrets, eat well, dress well, vacation well, do what truly makes you happy, but realize that happiness is a state of mind. If your financial house is in order, it is much easier for you to keep your personal life and well-being in order. This includes your family, friends, and your own physical and mental health. You need to be sure to live within your means and save for your future. It's always fun to blow money. But, you need to find a medium where you are enjoying life and also preparing for a future at the same time. That doesn't mean you have to make yourself miserable now because you are planning for your retirement. You have to enjoy life now; there is no guarantee you will be on this earth until retirement. Life is about living, not just existing. However, money and opportunities are too hard to come by to just waste them foolishly. Find the balance. Curb impulse buys. Spend consciously. Money is time. Whenever you buy something, you're not just spending money on it — you're literally spending time. Money is a representation of hours worked, and when you buy frivolous things, you're squandering hours of your life. Money buys freedom. Money cannot buy happiness, but it can buy freedom. Money can give you more options. Want peace of mind? Spend prudently.
16. STAY HEALTHY - Stay fit and healthy by eating healthy and regular exercise. Minimize alcohol consumption, avoid drugs, and don't smoke. Get regular medical and dental check ups. Get plenty of sleep. Keep a good work vs. life balance. Keep your weight down and don't over-eat. Utilize preventative health care. Don't take unnecessary risks doing things like tricky home repairs where you could hurt yourself – it's not worth the risk. Pay professionals to do the dangerous jobs that they are skilled for and have the proper equipment to do. It's not worth getting hurt just to try to save a few dollars. Don't be penny wise and pound foolish. Take care of your body and it will take care of you. Wealth is nothing without your health. Your health is your true wealth. Protect your health - it's your single most valuable asset.
17. START NOW - You don't get rich by being stupid. It's all up to you – nobody is going to do it for you. The longest journey begins with the first step. Start now!


updated slightly

[Taylor Larimore]

Hi Gekko:

During my 85 years on this earth, I wish I had absorbed just half the wisdom you have shared with us tonight.

Thank you.
_________________
Best wishes
Taylor

The Majesty of Simplicity

[dkdoy]

Great post, thanks Gekko

[GRT2BOUTDOORS]

Gekko,

That was fantastic. Any thoughts on publishing a "How to" book?

[DriftingDudeSC]

Gekko,

Wise words there......thanks for the post.

Michael

[norookie]

[neverknow]

Gekko, that was impressive.

fcalpine --- something my parents taught me that apparently everybody doesn't know; throw all junk mail away without opening it, same thing with "call now - only $19.99" TV ads ... just ignore all this junk - it is junk. When you shop, shop with a list. If it's not on the list, don't buy it.

I think it was my measly allowance when I was little that taught me this; I can have anything I want - just not everything I want. About the same age, it was real obvious to me that just because all my friends had something, or were doing something - made no difference to my parents ... I think this taught me to ignore "keeping up with the Jones". What really annoyed me as child was I could pick one activity to participate in, while my friends were involved in all sort of organized activities --- it sort of reinforced that I could have anything I wanted, just not everything I wanted. And it really annoyed me my clothes were home made, while my friends all had store bought clothes -- but I guess that doesn't apply to todays world.

I so hated my measly allowance, I did something different with my kids. I gave them enough allowance that they could choose the one activity they participated in, and save 10% in the bank savings account we opened together. They could go to the movies, or go roller skating - but they did not have enough allowance to do both in a single week, unless they skipped a week (or worked for it --- I did not pay them for chores or grades ... but neighbors might pay them for babysitting shoveling snow, mowing yards).

I grew up knowing "Debt is bad". I could never borrow from my parents, no matter what - and they had no debt. Debt is economic slavery.

Good luck.
neverknow

[joruva]

Gekko,

Really great words of wisdom, but I disagree with this part (or maybe I don't understand your reasoning):

[GRT2BOUTDOORS]

[raddle]

[baw703916]

[Tyrobi]

[DaleMaley]

some good advice here also.
_________________
Dale
____________________
Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees. – Warren Buffett

[DriftingDudeSC]

Dale,

What a great inspiring story. Thanks for the post.

My Dad always told me, "Make your money work for you." He and Mom were like that couple. Mom didn't work but they did very well.

Thanks again,

Michael

[Taylor Larimore]

Young Bogleheads:

If you didn't do it, scroll back and read the LINK in DaleMaley's brief post.
_________________
Best wishes
Taylor

The Majesty of Simplicity

[DaleMaley]

[retcaveman]

A very cool thing to do.

I always liked, live beneath your means, invest for the long term and one my favorite quotes from Thoreau, "the cost of a thing is the amount of life it takes to pay for it."
_________________
"The wants of mortals are containers that can never be filled." (Socrates)

[BigD53]

Gekko, could you please post a link to where you got that article? Thanks. Good stuff.

[SpecialK22]

[Gekko]

[traineeinvestor]

Gekko's list is a good one and will put people who follow it in a much better position than 90% of the population - not just in terms of achieving economic self suficiency but in terms of general health and well being.

At the risk of being branded a nit picker or heretic:

1. I agree with comments by others egarding 1-2 years of living costs in cash or near cash. For people in the accumulation phase the effect of lower returns compounded over a number of years will be a very high price for the peace of mind which goes with this (If in the decumulation pahse then it is a good guideline). Even putting the money towards additional mortgage payments would be preferrable to locking up so much cash at negligable returns.

2. Cash reserves and emergency funds may give peace of mind but cost money. I made a conscious decision to go to zero emergency fund/cash reserve late last year and put it all into the stock market. With a two income household with a combined savings rate about 50% of combined income I felt comfortable with the risk. The rewards were well worth it (famous last words). Since my wife will stop working at the end of this month, this is unlikely to be a decision which will be repeated.

3. credit cards. I love them. I put everything I can on credit cards. A lot of merchants (particularly restaurants) offer good discounts to credit card users. The points are useful. So long as I am careful not to spend more than I would otherwise do, I am better off using a credit card. I have a standing instruction to pay the balance in full each month and pay zero card fees. I look on this as a more efficient form of cash only spending.

4. Early repayments on the mortgage. In most circumstances this is one of least risky investments to make and one which will offer a decent after tax return. However, there may be circumstances where it makes better sense not to make early repayments. Over here in Hong Kong, economic conditions have lead to mortgage interest rates falling to about 1% pa. At that rate, I feel I am better off investing the money in bonds or equities than making early repayments. I appreciate that there is a risk here - the mortgage rate is floating - but for the last couple of years the positive spread on bond and equity yields has been too good to turn down. Needless to say, if interest rates rise far enough, I will go back to making early repayments.

5. On the amount of term life, I prefer to do the calculations based on what my family needs rather than replacing my income for a given number of years. Even term life is expensive. For some this woud be enough money to allow a non-working spouse to re-enter the workforce after a few years and to fund education and health expenses for children. Given that I am now close to retirement, I feel I only need enough coverage to discharge the balance on our home mortgage.