11 Simple Financial Tips You Should Have Followed 30 Years Ago

"Boy, if only I had found you guys 20 or 30 years ago. I would be all set!"

I hear some variation of that comment all the time from members of our Motley Fool community. Sadly, we can't turn back the clock and do things right. We can, however, teach the younger generation to avoid making our mistakes.

With that in mind, I created a handy, one-page financial checklist that will allow everyone to build their wealth over the long term. If you follow this simple advice, you'll be on the road to financial freedom. Best of all, you'll have no regrets in the future about your financial condition.

1. Pay yourself first.
That's a fancy way of saying you need to get in the habit of saving a portion of your earnings early on in life. It's probably the biggest single predictor of financial independence for you in the future.

2. Invest your savings smartly.
(A) First, make sure you set aside about three to six months of living expenses. Keep it in cash for unexpected events.

(B) Consider contributing to your 401(k), at least until you max out the company match.

(C) Consider opening a Roth IRA next.

(D) If you still have money left, you can go back to your 401(k) plan, if it's a good one. If you don't like your investment options, open a discount brokerage account.

3. Create a portfolio for all seasons.
Your plan for portfolio allocation shouldn't change with the investing environment. You will want a plan that you can stick to through thick and thin.

(A) A good rule of thumb for deciding what percent should be in stocks is to subtract your age from 110, the remainder should be in bonds. If you're 40 years old, that means you'd have 70% in stocks and 30% in bonds. Depending on your individual tolerance for portfolio volatility, you may deviate from this rule, but it's a good starting point.

(B) Only invest in stocks if you DO NOT need to touch that money for at least five years. If you need the money before, then you can opt for CDs or just plain old cash.

(C) If you aren't interested in managing your investments, consider choosing a target date fund or an index fund.

(D) Avoid high-fee funds with loads.

(E) High-yielding dividend stocks and REITs are good candidates for tax-protected retirement accounts.

4. Be an educated shopper of financial services.
Before acting on any advice ask your financial professional these two questions:

(A) How do they get paid for the advice they provide?

(B) Are they personally invested in whatever they've suggested?

If you're uncomfortable with the answers to those two questions, seek help from someone else, preferably a fee-only financial advisor or from a referral from someone you respect.

5. Buy term insurance.
You need insurance the most when you have small children. So, get enough insurance so that in the event of your demise and loss of income, your estate can pay off your debts, including your home, and cover your children's expenses through their college years. In the great majority of cases, term insurance is your best bet.

6. Avoid McMansions.
Don't buy a home unless you plan to spend at least seven years in that area. And you don't want to be house poor, so don't spend more than 300% of your gross household income on a home. A good price to pay is around 150 to 200 times the monthly rent of a comparable property.

7. Be responsible and check your beneficiaries.
Make sure you have an up-to-date beneficiary listed on your retirement accounts.

8. Roll over that 401K to an IRA.
If you switch jobs, avoid the temptation and penalties associated with cashing in that account. Instead, roll it over into an IRA.

9. Spend a few hundred bucks on these three important documents.
If you're an adult with substantial savings, you need to have a professional draft these three documents. These are really important, so we don't recommend using an online form:

(A) A will

(B) Durable power of attorney

(C) Living will

10. Start your own business early in life.
This may seem like an odd suggestion. The reality is that most people will learn far more about life and investing if they've operated their own business. It doesn't need to be a huge financial success in order for you to learn a set of skills that will benefit you for a lifetime.

11. Create a diversified, self-reflective portfolio.
(A) A basic portfolio should contain somewhere around 15 to 25 positions. We like the idea of buying in thirds. If a full position is 6% of your portfolio, you'll buy 2% at a time. Be sure to keep your trading costs below 2%.

(B) Consider 10% as the maximum position size when buying a stock. And no more than 30% of your portfolio should be in a single sector.

(C) Your portfolio should say something about you. A great place to search for potential investments is to track where you like to spend your discretionary money.

A new year is a great time for all of us to get our financial houses in order. Hopefully, the above list provides some helpful guidance. Here's to a safe and prosperous 2014. Happy investing!

Some bonus investing advice to start 2014

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 28, 2013, at 1:34 PM, ferdiefor wrote:

    I did all that 33 years ago and more. I would add do not buy cars every 3-4 years. In 33 years I have had 4 cars. The savings from that one choice can be enormous if you take good care of your cars.

    I started putting away $10.00/week which was all I had in the beginning and then with every raise increased it and learned how to invest my money for all seasons and semi-retired at 47.

  • Report this Comment On December 28, 2013, at 9:25 PM, PEStudent wrote:

    I did similar stuff, though I started in my late 30's and I retired at 56.

    My last 3 cars, bought new, were a 1987 Chevy Corsica, a 1997 Ford Taurus, a 2013 Honda Fit.

    I began investing in mutual funds by putting in $50/month. Then, in the early 90's with no online brokers and $180 trade commissions from Merrill Lynch, I joined no-trade-commission mutual funds and sent a little money in each month: Exxon, Cracker Barrel Old Country Store, Abbott Labs I still own the DRIPs and still add to them - to pay back my nest egg for paying cash for my last car.

  • Report this Comment On December 29, 2013, at 10:50 AM, TMFBuck wrote:

    Hi ferdiefor and PEStudent,

    Good points from both of you on cars as it can be a huge expense. With Zipcar, Uber and others many people are choosing to live in urban centers. It's entirely practical to do without a car, which in some cases can save you up to $5,000 or more per year, not mention many hours commuting in traffic. Our Honda Odyssey is still going strong after ten years and 132,000 miles and I enjoy riding my bike to work on nice days. For us the trade-off of a smaller home for a smaller commute has worked out well.

  • Report this Comment On December 30, 2013, at 11:53 AM, mdk0611 wrote:

    Beware of UBIT tax liability for MLPs purchased in a retirement account. Not a problem with respect to REITs.

  • Report this Comment On December 30, 2013, at 3:46 PM, gravyluvr wrote:

    Great list. Holding Cars for 2X the loan period is a good +1, REITs in Roths is another good +1 mdk0611 (don't know much about MLPs), and along the Car theme... I think luxury items in general (especially technology) should be bought just behind the R&D curve and never with debt (credit) unless you can pay it in cash. And for the love all that is holy, NEVER let anyone you love buy a Timeshare!

  • Report this Comment On December 30, 2013, at 4:08 PM, PauleyGirl wrote:

    I can help with #9 - if you dont have a LegalShield membership, get one stat!!!!!

  • Report this Comment On December 31, 2013, at 1:42 PM, nornirnsteve wrote:

    Reading this I just realized that come tomorrow it really will have been 20 years since I came across the Motley Fool and got hooked. Following advice such as the above during the intervening period and sticking to it I'm now almost ready to retire. Many thanks to all your writers over the years for providing the guidance and instilling the self-confidence in us Fools that successful investing is yes, mostly boredom punctuated by a few days of sheer terror, but it can be done !

  • Report this Comment On December 31, 2013, at 5:33 PM, Billmcg7 wrote:

    Scott Burns, a syndicated columnist , featured in many large newspapers. Like Dallas morning news ,gives great ideas , in keeping with the Fool . One is the couch potato portfolio . Google for more info. Peace and blessing for a new year

  • Report this Comment On December 31, 2013, at 6:04 PM, rmarm wrote:

    I can't help but love the suggestions about cars. You guys have it right, and this is typically the first advice I give graduates: don't buy that car. If you really need one, buy a good solid used one but only if you really need (not just want) it. I've saved tons by always taking the time to find well cared for and well depreciated used cars. If you are patient, you can always find someone that has babied their car and also put very few miles on it. Along with this, I've saved interest by paying cash (low priced cars) and on auto insurance by only buying liability (for that low priced car who needs comprehensive?). Further, I drive carefully - easy does it - and have never had an accident in nearly 4 decades. That saves too by saving on gas and higher insurance rates from tickets or accidents. In total, over the last 30 years I've saved over $100K between the cost of cars, interest, and insurance by not buying new. And as fellow Fools would expect, I did not just save this but invested it: that $100K is, shall we say, a bit more after investing for that time.

    Other ways to save: drop cable (never had it: savings of more than $30K over 30 years; pay yourself first (as mentioned elsewhere); take modest vacations; don't eat out too often; lose bad habits (smoking, drinking, whatever); set up weekly/monthly auto transfers to various savings accounts (emergency fund, home down payment, etc.) never dip into these accounts and find ways monthly to tweak up the amounts automatically saved, even by just a few dollars. Of course debt is sometimes necessary, but only take out modest amounts, ensure that there are no prepay penalties, and make it a game with yourself to see how fast you can pay it off. Pay off credit cards fully at the end of the month. Period.

    Finally: realize that most times wanting something is better than actually having it: once you have something, it is easy to care less about it but you are still out the money you paid. So be careful of what you buy and practice window shopping for the best price - many times I've taking so long to find the best price that I've decided I don't want that thing any more and am glad I didn't blow the cash. Repeat as necessary.

    At some point (earlier than you think) you should have enough cash/equivalents, that when you need (NEED!) something that requires a loan by most people, you can effectively write a loan for yourself: you pay yourself back the principal AND the interest you would have given someone else.

    I could go on forever - thanks for reading - and thanks for all the advice!

  • Report this Comment On December 31, 2013, at 6:36 PM, nrynn wrote:

    How do I put $50 every month into a mutual fund? Wouldn't that incur transaction expenses each time? Also, many nice funds (from vanguard, say) have a minimum of $3000 (or $1000). Any advice?

  • Report this Comment On December 31, 2013, at 6:45 PM, ptashner wrote:

    If you earn $50,000 a year for 30 years, you've earned $1.5 million. Congratulations, you're a millionaire! But wait, 40 - 50% goes to the government between income tax, social security and other taxes. That new boat and new car and newest smart phone and all the other toys of modern times take a huge whack out of your hard-earned money. So one key is to earn more, while the other key is spend less (while still enjoying life's journey).

    If it depreciates, avoid it or minimize it. If it appreciates, load up.

    Never buy a new car. 2 - 3 year old cars in excellent shape are available and will save thousands of dollars a year - and they will last you 9 or 10 years.

    Eat in at least 90% of the time. Learn to enjoy cooking - put on NPR or your favorite music to help get your creative juices flowing and you can dance around the kitchen whipping up a tasty meal to your liking. Minimize processed foods - and you may save big by avoiding the need for medications and hospital visits.

    If you're under 40, invest 30 - 40% of your funds in aggressive growth stocks in growing sectors. Don't be wild, but don't be too conservative. Motley Fool helps. Read "Superstocks" by Jesse Stine to get some good ideas that mesh Fool with IBD.

    I started my own business at 32, traveled a lot, didn't have time to watch my investments so parked most of it in secure dividend stocks like GE, Pfizer, Chevron, and a couple of strong mutual funds. Tired from my business, I didn't have time or energy to do more. They did ok with modest returns, but I wish I'd studied Fool and a couple of other sources and acted more aggressively long ago.

    We're all investors. Invest your time in your job. Invest your time and money in your own business. Invest in stocks or bonds or gold. Don't be afraid to invest in well-researched stocks or mutual funds.

    A good thing about stock investing is once you develop a system that works for you, it's unlikely you'll ever be unemployed. You may not make millions on your investments, but you can continue your investing into retirement from the comfort of your home office and computer.

    Travel, see the world, eat locally, meet local people, understand how they live. You'll be far richer for the experience. And keep a journal, because the memories will fade and if it's worth living, it's worth writing down. It's your investment story. Happy New Year 2014.

  • Report this Comment On December 31, 2013, at 9:01 PM, soycapital wrote:

    great tips and comments too! thanks, hope everyone passes them on to their kids.....

  • Report this Comment On January 01, 2014, at 1:10 AM, JadedFoolalex wrote:


    Set up a Investment account with a low cost direct investment company and start contributing to the account. Once you have enough money to buy the fund or ETF that you want, purchase it. You can contribute more money to it as time goes on, or if your like me and every other investor out there, you'll want to contribute more money and buy other investments!

    As for the article, I take issue with #2. Do NOT consider!!! CONTRIBUTE!!! Don't even think about it, just do it. You'll thank yourself later when you see a large sum of money in an account with your name on it!

  • Report this Comment On January 01, 2014, at 12:47 PM, TMFBuck wrote:

    Hi nrynn,

    JadedFoolalex already provided a good answer to your question and I'll add one thought. ETFs you can buy and sell just like a stock AND you'll generally pay a commission each time you decide to add money. You don't want to pay a $10 transaction fee each time you add $50 into the ETF. Once you've invested in a mutual fund you can invest additional money without paying a commission. So if you're planning to regularly be adding small sums a mutual fund might be the best option. Some brokerages do allow you to invest in a group of ETFs commission free so with some research that might be a good option too.

  • Report this Comment On January 01, 2014, at 1:42 PM, kmiao1 wrote:


    Call up Vanguard and have them walk you through the periodic investment process. It can be automated as a draw from a bank account or you can have your employer make the payment as a deduction from your paycheck. There should be no cost attached to this by your bank (if there is, find another bank) or by Vanguard. Typically, fund companies waive the start up investment if you are on an automated investment.

    As for the article, it's missing an important other step: Live below your means (not impoverished, but don't spend everything and don't change your lifestyle when you get raises and bonuses).

    On #3, you should be looking at index funds to avoid the individual stock risk. Look at "Little Book of Common Sense Investing" by Bogle.

    On #11, see above. Why go through the hassle of selecting the 20 positions when you can index? Also, what's with the reflection of you? Is this the new agey thing? See Bogle's book.

    Good luck,


  • Report this Comment On January 01, 2014, at 11:44 PM, Kansas101 wrote:

    We are getting a 10K Grant tomorrow. We need a car, and do you have any advise on investments we can make and be sure about?

    Thank You and GOD Bless! Jane.

  • Report this Comment On January 02, 2014, at 10:35 AM, nrynn wrote:

    Thanks @JadedFoolalex , @TMFBuck and @kmiao1. Your comments were very helpful. I didn't want my $50 each period to be just sitting until it hit the minimum lump sum. @kmiao1's response especially address this point. Thanks guys and have a wonderful foolish year!

  • Report this Comment On January 02, 2014, at 2:35 PM, 10Million100 wrote:

    For Cars, I will give you an advise, which may be useful.

    I bought 2006 corolla in 2012. 100k miles from a good dealer for $7500. Mileage is 28 miles to 32 miles depending on local/highway. Not much maintenance, only regular oilchange and other stuff. It's a chain, so no need to change timing belt.

    If I run this car for another 50k /75k miles, then it has done it's job.

    Also, I invest in long calls only and last year my return was around 75%. It's not guaranteed, but next year let me see how it goes.

    So invest in small amounts in 10 different stocks and you should be okay.

  • Report this Comment On January 03, 2014, at 3:09 PM, Scarface wrote:

    I'm all for frugality, but no cable, internet, no eating out..... You have to have a little bit of a life. I mean, i could live in a tent, have no kids, and eat from a garbage can too.

  • Report this Comment On January 03, 2014, at 5:56 PM, MCCrockett wrote:

    The article's title purports that the article will be about financial tips that we should or could have followed thirty years ago. It then identifies financial choices that we couldn't have possibly made thirty years ago. What's with this?

    The original Individual Retirement Agreement (IRA) accounts could only be offered by banks or savings and loan associations. They were roughly equivalent to today's money market accounts albeit paying a higher interest rate and without a check-writing option. In addition, you couldn't contribute to an IRA if you were covered by a defined-benefit retirement plan.

    As I recall, the Roth IRA didn't come into existence until 1999. It was not an option 30 years ago. And, when they were first made available, you couldn't participate in them if your income put you in the fifth income quintile.

    Finally, who creates these silly rules-of-thumb about how much of your financial wealth should be held in stocks or bonds? If you're under 60, you should have no bonds in your portfolio not today, at least. Were I able to replay the last 15 years, I would defer all bond purchases until after I reached 70.

    I yielded to my financial advisors arguments that I invest in bonds but managed to not succumb to suggestions that I buy term insurance. It might be useful when you're young but it seems to be a total waste of money when your children are through college and you have no debts.

  • Report this Comment On January 04, 2014, at 4:36 PM, Mathman6577 wrote:


    1. After amassing a 6-9 months emergency fund save > 10% in a 401k/IRA (spend the rest but take on no debt).

    2. Invest in an low-fee index fund.

    3. Live in low-tax state.

    4. Get educated.

    5. Work for a good, solid company.

  • Report this Comment On January 05, 2014, at 6:51 PM, gillmorem wrote:

    Please don't pay for a living will and durable power of attorney for health care. Documents are available free of charge at health care providers or on-line. Depending upon the state they just have to be notarized or witnessed by two people not related or benefit from the estate. These are important documents just don't pay an attorney for them unless it is a complicated situation.

  • Report this Comment On January 07, 2014, at 10:42 AM, edouard wrote:

    These are all great ideas. If you have the discipline to implement them, and give them a little time to develop, you'll be in great shape for retirement. There are a lot of ideas in The Young Adult's Guide to Financial Success. It's a worthwhile read.

  • Report this Comment On January 07, 2014, at 6:45 PM, marei wrote:

    Recipe for Wealth: Dollar Cost Averaging from Bond to Stock Index Mutual Funds. Subtract your age from 110 to get the approximate initial percentage to put into stocks. Fuel the machine with your bond earnings. Mix in the passage of time. Don't deviate!! Enjoy!!--Tom Reilly

  • Report this Comment On January 16, 2014, at 11:17 AM, BTN100 wrote:

    Simple rule: spending < earning

    It's amazing the number of people that have $100+ cell phone plans but don't have even a month's worth of savings.

  • Report this Comment On January 28, 2014, at 2:21 AM, ashleyjames389 wrote:

    Best Tip: Do what Warren Buffet does, that guy is never wrong

  • Report this Comment On February 19, 2014, at 12:14 PM, IneptInvestment wrote:

    While I see the reasons for many of these guidelines, I agree with Scarface. I am in my twenties and I contribute to a Roth which holds stocks from large dividend paying companies, I drive a used vehicle, and I have far more than a years emergency fund saved.

    At the same time I will continue to spend money on entertainment and vacations. I may have to put off retirement for a couple years, but I don't want to look back at my life and see nothing but work. I want to have memories, family, and friendships.

  • Report this Comment On February 22, 2014, at 5:07 PM, beth1992 wrote:

    Just hit 65, have Foolish aggressive stocks for practically all my savings. Can't bring myself to buy a bond when my mattress pays better interest.

    Kept my insurance until my savings were enough to support my kids to maturity. Then I got long term care insurance to make sure that my disability would not destroy my kid's security.

    Don't forget charitible contributions. We all have different ethical points of view, but probably believe that investing in our world, however we choose, is also critical.

    Great advice in original article and subsequent comments.

  • Report this Comment On March 07, 2014, at 9:13 PM, Chrisk51 wrote:

    I use an automatic monthly deposit. into my T-Rowe price accounts.(mutual funds) minimum is $50.00 per month. with no commissions. I'm not sure but I think to open each account is only $50.00 deposit. It all goes into the media and tech fund. Then when ever I want I can get online and move it from one fund to another. I have been putting most of it into the health sciences fund for a couple years it has done great.

  • Report this Comment On March 09, 2014, at 8:39 PM, MrBrownstone wrote:

    If you have an hour or so (which everyone has), read a book called, "The richest man in Babylon." It is the basis of how to master your financials. When it comes to your money, make your own decisions and stick with a strategy that works for you. If you have invested in quality companies, regardless of how difficult times get, you should not have to worry.

    I am a young adult, and while I have a very good 401k through work, I am also building my own portfolio based on dividend growth. My goal is to build a portfolio that will support me even if I ever lose my job or if I decide that I've worked enough for someone else.

    The ultimate goal should be to be in control of your own financial situation. Start early, and you will see the magic of what compounded returns can bring you.

  • Report this Comment On March 10, 2014, at 8:47 PM, bigal8081 wrote:

    i looked at some

    vanguard fund but they want 3000 t0 start . So I got into Drips instead Srarted with $ 25.00 After 2 years my fund is worth $ 1,io6 My pics Cinf Walgreens and PnWNeedless to say bit I got in at the right time Good luck all

  • Report this Comment On March 19, 2014, at 2:53 PM, inhoc86 wrote:

    There's some fantastic advice in these comments. But, wow! Some of you are boring as all get out. "Learn to eat in," "Never buy a new car," "No cable," "Drive slow." There is something to be said for living life and not just being alive. Loosen up, Fools!

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