Across My Desk: Vanguard's Rules For Financial Success

The piece, dated Summer 2004, was under the heading of Managing Your Wealth and titled, "Ten Time-Tested Rules For Financial Success". In a nutshell, here are the points the piece makes:

1. Have a plan. Start with a comprehensive analysis of your finances. Determine what you'll need to achieve your goal, and then create a road map to reach it.

2. Maintain the right mix. The proper asset allocation ---blend of stocks, bonds and cash---is critical. The right mix depends on your objective, age, and risk tolerance along with many other factors.

3. Resist chasing performanance. An investment that's doing beautifully today may not look so good tomorrow---and vice versa. In the long run, you're better served by ignoring the "beauty contest" of short-term performance and sticking with a diversified, broadly based portfolio.

4. Pay attention to what you can control. You can't influence how the markets will perform. But you can affect how much you'll pay in investment expenses and taxes, both of which will eat into your returns through good times and bad.

5. Rely on yourself---not Uncle Sam---for retirement. To maintain a comfortable lifestyle in retirement, some say you'll need at least 80% of your preretirement income. As a result, it's unlikely that you'll get through your golden years on Social Security alone.

6. Take advantage of "free money." If your employer offers to match your contributions to a retirement plan, take full advantage of that. And, contribute the maximum amount your can to your retirement plan(s). Increasing your savings rate may be a sacrifice today, but you'll thank yourself tomorrow.

7. Maintain a safety net. Too many of us have little or nothing set aside as a reserve in case of unemployment, illness, or other unforeseen hardships. A "rainy day" fund equal to three month's income is what most financial planners recommend. (Based on my research and experience, I say that one's rainy day fund needs to be able to cover living expenses for at least 6 to 12 months.)

8. Watch your debt. Cancel the credit cards you don't truly need, and use credit cards sparingly---when you know you'll be able to pay balances in a timely fashion.

9. Protect your nest egg. Resist the temptation to dip into your retirement savings for nonretirement expenses.

10. Do your homework. The first nine rules are only a starting point. Regardless of your financial situation or level of experience, it's important to educate yourself about investing and investments.

To those 10 points, I'd like to add one more: 11. Teach your children about money and saving. Remember, you are the example from which your children will learn all about money, the management of it, and, investing. Be---or become--- a good example. Your example will follow them throughout their entire lives.