Plain Money ideas

The book that started it

Getting a Grip on Your Money was published in 2002 and had a good five-year run. It was featured on nationally syndicated talk shows, published overseas, and used for group discussions in a variety of settings. The book is still available from and free leader resources are available but now that its active promotion has ended, this site seeks to promote and extend the “plain money” theme of the book.

Plain Money ideas

Phones: Why prepaid is (still) best

Smart cellphone customers use prepaid plans. These plans offer better value than traditional postpaid plans. Most such plans work the same way — you just pay before the month’s service instead of after.

Nexus 4The very best deals are for consumers who pay up-front for unlocked phones and then buy a prepaid plan. Just slip in the SIM card and you’re in business. Because the carrier hasn’t subsidized the cost of your new phone, it doesn’t have to build in monthly charges to recover that cost. (Do the math and you’ll find a “free” phone is very costly by the time you’re done with a two-year contract paying for it.)

For the past few years, the very best deal of all was to buy an unlocked Google phone that used the “GSM” standard — because AT&T, T-Mobile and foreign carriers all supported GSM. You could switch from AT&T to T-Mobile and back just by changing SIM cards. Instead of a monthly charge, you could have a pay-as-you-go plan and save even more money — especially if you spend most of your time around free Wi-Fi networks. One excellent plan by AT&T’s GoPhone charged $5 for 50 megabytes a month. That’s not much data but it’s enough for a cautious user who’s around Wi-Fi a lot.

That plan is no longer available, but there is a $25 per month plan that offers 50 megabytes of data per month for $5. It competes directly with T-Mobile’s $30 per month plan. There are differences in the included voice minutes and messaging, so check both plans if you’re thinking of going this route.

In my family, we have two T-Mobile prepaid plans, one Tracfone and one GoPhone plan on a Nexus phone. The beauty of an unlocked phone like the Nexus is that you can go get a compatible (T-Mobile or AT&T) SIM card for it and switch carriers just that easily.

Summary: Prepaid service with unlocked phones is the best; with an unlocked phone you can easily go to another carrier.

Plain Money ideas

The market is near all-time highs . . .

but it is still best to buy and hold index funds.

Plain Money ideas

Buy and hold index funds

There is an investment strategy so powerful that Nobel laureates in economic science employ it — but so simple that you can use that same strategy with a minimum investment of only $250! That strategy is:

Buy and hold index funds.

Wait! Don’t go! There are usually two responses to this, and both are wrong. One response is “I’ve heard all this before.” The other is “That’s too complicated for me — I don’t even know what an index fund is.” Here’s why they’re wrong:

  • I have corresponded and spoken with many people whose reaction is “I’ve heard all this before.” They haven’t. Most often, they have been fed some half-baked slogans against index funds, and that’s all. I have yet to meet a fully informed investor who believes that it’s easy to top the results of buying and holding index funds.
  • If you think this is too complicated to figure out, read through just a few paragraphs more. I think you’ll change your mind.

Before you ever start investing, there are some first steps that you need to take. My book, Getting a Grip on Your Money, will show you what to do in some detail. Briefly, your object is to get your finances in order so that you can leave your invested money alone. You have to give it time to work; it won’t do much for you if you’re always snatching it in and out of the market.You’ll need to establish some goals, get control of your budget, and get your insurance in order first.

If you haven’t done any of this, then start with my Chapter 1, “Declare Victory,” the first of the steps to simplify your finances and prosper. But don’t wait too long! Time is on your side when you invest, so invest early and often, even if it’s not a big amount at any one time.

Key fact: A mutual fund can invest in stocks by pooling the money of individual investors, then in effect buying stocks on their behalf.

There are lots of good reasons to buy many different stocks rather than just one or a handful. But if you set out on your own to buy a set of stocks, you’ll face brokerage commissions and other expenses. Especially for small investors, this is why a mutual fund is often better then directly buying stock.

When you send your money to a mutual fund, the fund pools your money with that of many other investors, then puts the money into the stock market. You share in the gains and losses of the fund, according to how much money you have put in.

Key fact: Typical mutual funds incur a lot of cost trying to find stocks that will return more than the market (“beat the market.”).

Some mutual funds are actively managed, meaning that their managers try to pick stocks that will do better than the general market, or “beat the market.” It’s costly to hire analysts and trade frequently trying to beat the market.

How do they know when they succeeded in beating the market? They calculate how well their fund did, then compare that with how well an index of stocks did. An index is a collection of stocks. Indexes are averaged using different methods, but the intent is the same: to indicate how “the market” is doing.

For example, the Dow Jones Industrial Average is an index made up of 30 stocks. The performance of the Dow Jones is widely reported and you can easily calculate whether you’re “beating the Dow.”

You could make your own holdings duplicate the performance of the Dow Jones by buying small amounts of the 30 stocks in the Dow, in the same proportion they’re in the Dow. Of course, you’d spend a lot on commissions and transaction fees.

Key fact: An index fund avoids the cost of trying to beat the market, by just matching the market.

The Standard and Poors 500 is a collection of 500 big stocks. You could duplicate its performance, too, just by buying small amounts of those 500 stocks in the same proportion they’re in the index. But you would have to pay the commissions and fees associated with buying 500 different stocks! That would be impractical for a small investor.

Here’s where an index fund comes in. As a special kind of mutual fund, it pools funds from you and other investors, then invests the money in the stocks that make up an index. Because it has millions of dollars to deal with, it avoids the high commissions and fees that would be faced by an individual investor. Better yet, it can easily invest in 500 or more stocks.

So if you invest in a Standard and Poors 500 index fund, you’ll get something like the average return of those 500 stocks. Some will do well, some will do poorly, and you’ll get the average.

What’s so good about that?

Key fact: An index fund gives you average returns at a below-average cost. That’s why index funds usually beat conventional actively managed funds.

What matters to investors is a fund’s net return. If a high gross return is eaten up by big expenses, that means a low net return — your bottom line. With an index fund you get average returns, by definition. But you get to keep a bigger part of those average returns, because your fund hasn’t incurred big expenses trying to beat the market.

Key fact: In most years, index funds outperform more than half of the actively managed funds.

Sometimes conventional actively managed funds do well. Their managers spot good stocks, buy them up, and hold on to them long enough for superior returns. But they incur expenses in doing this. In most years, these funds don’t do well enough to outperform the indexes.

The investment firm Standard and Poors keeps a regular scorecard of how well actively managed funds do against the indexes. The scorecard is called “SPIVA.” Go on over to that link and check for yourself. The last time I checked, an astounding 86 percent of large-stock mutual funds underperformed their index. There are some technical reasons why that figure is a little exaggerated, but the basic truth remains: In most years, actively managed mutual funds do not beat index funds.

Key fact: It is very difficult to find any investment strategy that outperforms buying and holding index funds.

This is one of the most obvious facts among those who have carefully studied investment markets. The more you know, the more likely you are to see the advantages of holding index funds. Nobel laureate William F. Sharpe is the author of financial market theories that highlight the advantages of indexing. Sharpe was asked whether he invests his money in keeping with his own academic work:

Q: Do you invest your own money in broadly diversified stock index funds?
A: I certainly do.
Q: Do you try to pick individual stocks or time the market?
A: No. I invest in various funds covering bonds, large stocks, small stocks and international stocks.

(Source: Interview with William F. Sharpe in Classrooms and Lunchrooms.)

On the other hand, people who know less about financial markets are likely to underestimate the advantages of indexing. It’s hard to call index fund investing a “secret,” but it’s surprising how many people get inferior returns each year because they don’t know about it.

In Getting a Grip on Your Money, I promise readers to keep up with the mutual fund industry and let them know who the low-cost leader is. At the time I finished the draft of the book, that firm was the Vanguard Group of Investment Companies. That’s still true today, and I still recommend the Vanguard Group. However, there is one additional possibility to check out if you have a smaller amount of money to invest. See below for details.

One more check: Are you really ready to invest?

You’re not ready to invest unless you have gotten your insurance and banking relationships in order, taken maximum advantage of tax-deferred retirement plans and saved an emergency reserve. Remember, the strategy is to “buy and hold.” That means not pulling your money out of the market except in truly unusual circumstances.

Time for a disclaimer: This information is free and I’m not your financial adviser. I’m not getting paid by any of the investment companies. Before you invest in any fund, read the prospectus carefully. Understand that mutual funds can gain or lose value and there is no assurance that you will get your original investment back. Don’t trust anyone who claims that any investment is a “sure thing”!

If you are ready to invest, here’s what’s next. Start with a money market fund, then add a total stock market index fund and a total bond market index fund. You’ll need a $3000 minimum to open each account. To get started, either:

The specific funds you’re interested in are:

  • Prime Money Market Fund (fund number 30)
  • Total Stock Market Index Fund (fund number 85)
  • Total Bond Market Index Fund (fund number 84)

There are also good things to be said for the investment companies TIAA-CREF (of which I am a customer) and Fidelity (of which I am not). Check their websites if you’re interested in them:



But if you really want to know what you’re doing, go get my book for 1 cent plus shipping (prices may vary) at


Plain Money ideas

Mid-year checkup

UntitledMid-year is a great time to do a financial checkup. You can multiply spending, income and tax totals by 2 to get an estimate of what the whole year will look like financially for you. You can also check on your income tax withholding to see if it’s about right.

If you’re paid regularly, just take a look after your June 30 or July 1 paycheck and multiply your “income to date” and “federal tax withheld to date” by 2. That gives you a rough estimate of what your year-end income and taxes look like. If your year-end income looks a lot higher than last year’s, you can have more tax withheld. That increases the probability that you’ll get a refund instead of having to pay more when you file taxes next year.

Here are a few more points to keep in mind:

  • This exercise works best if you’re paid a regular salary. It’s much less valuable if your pay goes up and down a lot.
  • If you want to get a little more precise with your withholding calculation, there’s a handy calculator at TurboTax.
  • If you want to make sure you don’t owe penalties or interest when you file your taxes next year, check out the Safe Harbor Rule, so that you can remain OK even without a good estimate of the next six months’ worth of income.
  • Although a big tax refund might look nice, keep in mind that such a refund is vulnerable to identity theft. Caution would argue for not letting so much money accumulate in tax withholdings.
Plain Money ideas

Yet another reason

flashboysThere’s always another reason for small investors to stay out of the individual stock investing game, but this point sometimes produces an unusual twist. From watching 60 Minutes or Today, you may think small investors are being disadvantaged by high-frequency trading. They might or might not be. Here’s an author who thinks they’re not hurt. But an incidental point in the article is raised by a former chief investment office at my favorite mutual fund company. Here’s the key point: “Rather than decrying speed traders, Sauter praised the benefits it had brought to him and his clients. By his estimate, speed traders helped him save him more than a $1 billion a year.” Improvements in the technical efficiency of markets help those who buy and hold index funds.

Plain Money ideas

Nice item for cable-cutters

eraseGetting rid of cable TV is one great way to boost a household budget. Not only do you lose the cable bill — you also may find yourself spending less time in front of the screen and more time in the real world. But if you think you would miss your cable package’s included DVR, here’s a valuable ally in cutting the cable: the DVR+ from ChannelMaster. Combined with an antenna, it picks up local TV in high definition and records whatever your specify. Here’s a useful review with all the details, and here’s an excellent support thread at AVSforum.

Here’s a post on a predecessor to the DVR+ (I still have mine — in fact, the only reason I haven’t gotten a DVR+ is that my old box is still working so well.)

Plain Money ideas

That $1 million goal

How much money do you have to save up to be “rich”? Let’s try the nice round number of $1 million. That puts you in the top 10 percent of the wealth distribution. OK, that’s rich.

But a column in The New York Times says wait, $1 million isn’t enough to comfortably retire on. Whoa! Nine of ten Americans have less than enough! If this is really true, I suggest the problem lies in defining what is “enough,” not in any failure to accumulate wealth.

Or, to put it another way: If your definition of “enough” is so high that 90 percent of us can’t get there, you’re just assuming way too much spending, spending, spending to buy stuff, stuff, stuff. (Look it up: “Watch out! Be on your guard against all kinds of greed; life does not consist in an abundance of possessions.”)

Plain Money ideas

Wolf repellent

There’s quite a bit of stir about the film, Wolf of Wall Street. I haven’t seen the film, but I have noticed that critics — after talking about its technical quality and hard-R-rated content — feel obliged to say that it makes some kind of important statement about the immorality of financial markets in the U.S.

And naturally, this led me to an important point: Nobody who followed a sound financial plan was victimized by the anti-hero of the film, the Wolf of Wall Street, the criminally immoral financial entrepreneur. Only those trying to get rich quickly would fall for a classic pump-and-dump scheme. So here is your wolf repellent: Buy and hold index funds.

Plain Money ideas

That “one card”

Is investing really so simple that a complete plan could fit on one card? It is, according to Harold Pollack. Here’s the card (click for enlargement):


Actually, it’s even simpler than that: “buy and hold index funds,” after getting your finances in order so that you have some money to save. Here’s a little detail on how the card stacks up:

  • The first line talks about maxing your 401(k) or equivalent — great advice, especially for all dollars saved that generate an employer match.
  • Those “inexpensive, well-diversified mutual funds”? The most inexpensive and most diversified are index funds. And that strategy means “not buying and selling individual securities.” More of the same shows up below when the card says to pay attention to fees and avoid actively managed funds — again, automatically taken care of if you buy and hold index funds.
  • “Save 20% of your money” and “pay your credit card balance”? That’s a reasonable goal for a percentage and good advice on credit cards.
  • Maximize tax-advantage savings vehicles? That’s the first point again.
  • Make financial advisor commit to a fiduciary standard? Sure, get a good advisor when you need one, but up until that point just buy and hold index funds.
  • And finally, promote social insurance programs? That’s a reasonable position to take, with a couple of things to keep in mind: (1) It won’t personally affect your wealth, because of (realistically) your inability to affect national legislation; and (2) “Promoting social insurance programs” doesn’t mean you have to promote badly run social insurance programs or social insurance programs that are doomed to collapse.

Finally, what’s missing from the card? The most important things in life, such as faith and friendship and love. “Promoting social insurance programs” is a poor secular substitute for any of those things.