Chapter two deals with spending and saving and like many other authors an emergency fund is recommended as the first step, but in this case, it is being called a cushion fund. Have at least three times your monthly expenses. Other tips for putting your financial life on cruise control:
First automatic savings idea: an employer retirement plan
A personal retirement plan you start yourself (IRA or Roth IRA)
Pay off your credit card debt
Reinvest all dividends
Start a college fund
Pay off your mortgage
For retirement, you must put 10 percent to 15 percent away. You must reduce and then eliminate credit card debt. You must create a cushion fund. Start with saving one month of expenses. College savings is next, but its just an option. Its an error to put college ahead of retirement savings, if you cant afford both. Kids can always get student loans, but banks dont give retirement loans. Prepaying your mortgage is last. Most of this is fine, in principle, whats lacking is the critical review of the excessive fees of the investment industry and that over time almost all mutual fund managers fail to exceed the S&P 500 annual returns. So, actively managed funds arent a great investment if you want stock market exposure, an index fund will track the S&P 500 at much less cost. Think about it, if you pay a 1 percent management fee for your mutual fund investment over the course of your lifetime you are leaving a lot of money on the table especially given the statistical certainty that no fund has been able to outperform the S&P 500 or Dow Jones benchmark over long periods of time. It depends on the fund, be it load or no-load, and tax consequences if the fund is held outside of a retirement account but you could still have three to four percent of your assets disappear each year due to investment costs! See the book, the Great Mutual Fund Trap for detailed information on fees and professional money manager lack of performance.