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In this complex world of finance, we need to keep these main areas simple: Saving, insurance and investing

1. Saving, Spending, and Credit

If you aren’t saving enough you are probably spending too much. One reason is today it is easier to spend money.

For example: You have to pay off your credit card every month. If you can’t maintain the discipline to pay off credit card debt every month then you are better off not using a credit card.

It’s also harder to know how much to save. Working 35 years at one company for a pension ensured an income stream for the rest of your life. The U.S., we have had a big switch from traditional pensions to what are called defined contribution pensions like 401k plans. This puts the all the responsibility to save and invest wisely on the individual worker.

Commit today to raise your savings rate in the future. For instance, commit to putting half of your next raise into savings. This makes saving more palatable.

2. Insurance (Car, Home, Life)

Terrance Odean recommends we figure out what insurance we need and what we don’t need.

When it comes to life insurance, if someone is dependent on your income to live then you need life insurance. With car insurance, homeowner’s or renter’s insurance – go out and get quotes from 3-4 companies. You may be surprised by the difference in prices between companies.

Also consider taking a bigger deductible. Choose a deductible that won’t be a disaster for you that it would set you back financially.

You can get better investment returns and the same amount of life insurance coverage if you separate your insurance and investing into term life insurance and investing in mutual funds or other products. There may be people who have unusual circumstances that would benefit form one of these more complex insurance product, but the fees tend to be quite high when compared to other investment vehicles like index or mutual funds.

3. Keep Investing Simple

Complexity is the enemy of the consumer.

The financial services industry likes complex products because it makes it difficult for consumers to compare products between companies.

Commit to having savings and investment contributions automated with each paycheck.

 

To find out more about Terance Odean and sign up for his free course, visit Odean.org.

 

Today’s Panelists

Doug Goldstein | Rich as a King
Miranda Marquit | Planting Money Seeds
Linda P. Jones | Be Wealthy and Smart
Joe Saul-Sehy | Stacking Benjamins

For a quick bio of each of our show participants, head on over to our panelists page.

Send us your questions for a future Listener Letters episode