9-Step Plan From Dilbert

Jason at Wheaties for Your Wallet brought up a 9-step plan for better personal finance from Scott Adams, creator of Dilbert:

  1. Make a will.
  2. Pay off your credit cards.
  3. Get term life insurance if you have a family to support.
  4. Fund your 401(k) to the maximum.
  5. Fund your IRA to the maximum.
  6. Buy a house if you want to live in a house and can afford it.
  7. Put six months expenses in a money market account.
  8. 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.
  9. If any of this confuses you, or you have something special going on (retirement, college planning, a tax issue), hire a fee-based financial planner, not one who charges a percentage of your portfolio.

Bravo! If you’ve done all of these, you are all set. No need to read more finance blogs (except this one). Although I’d replace #9 with

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

It’s more important if you understand the issues than relying on a financial planner. That’s why I maintain a Recommended Reading List.

Jason said it very well

Putting money into 401(k)s and funding IRAs is hard. There are always reasons to not do it, but they really boil down to an unwillingness to take action with money.I’ve spoken to friends about why this might be and the reasons vary, but they usually come down to this one thing: we don’t want to make a bad decision, so we don’t make any decisions at all…which is of course a bad decision.

My new goal with money isn’t to get things perfect, and instead get it mostly right, i.e. Get the nine things on the list done.

I’ve done 8 out of the 9 things on the list. Not necessarily perfectly. There is a old saying “The greatest enemy of a good plan is the dream of a perfect plan.” So stop worrying about whether you are doing it perfectly. Just doing it will get you ahead. You have plenty of time for improving your plan as you go along and I hope this blog will be helpful when you do that.

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  1. sewall says

    A short version: “The perfect is the enemy of the good.”

    Also, as per your other posts, I think you don’t agree with numbers 4 and 5. The order should be 401(k) to employer match, then max Roth, then max 401(k).

    An interesting question is where 529 funding fits into this order. I do it before maxing out the 401(k) but after the Roth. Others have debated that this potentially gives up retirement savings for college savings, which one has to be careful about because, as is often said, “You can get a loan for college, but not for retirement.”

    However, what is also often true is, “You can delay retirement but not college (much).”

    But the most convincing argument for not necessarily maxing out one’s 401(k) and instead putting some money in a 529 (if needed) is that the maximum is a statutory limit having nothing whatsoever to do with an individual’s needs. That is, if you feel that saving 20% for retirement is sufficient and you can do this without maxing out your 401(k) (though after maxing out your Roth) then stop and save for your other needs. Putting money in a 529 is sensible if you’re already doing enough for retirement independent of whether or not you’ve hit the arbitrary statutory cap. Congress does not know how much you should save for retirement. The max is just the max, not the right number.

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