“Life is really simple, but we insist on making it complicated.” – Confucius
Personal finance is surprisingly simple. Live below your means. Invest for the long term. Keep at it. Prosper. Yet, we instinctively want to complicate the process because we can’t trust that something so important can be so simple. I mean, how can the best way to invest for the long term be to just buy an index fund and leave it alone?
Of course, the financial industry doesn’t make it easy either. After all, they are paid to manage complexity and if wealth management is too simple, then they would be out of a job.
There’s Too Many of Everything
As a result, we have too many funds and individual stocks that require our constant attention. We have so many credit cards we don’t even use in our drawers, and we have so many financial accounts that it becomes difficult to manage our assets properly.
Enough is enough. Make it a point today to start simplifying your finances and thus your life. Here are a few ways to make your life less complicated.
I had to go to the bank the other day and someone on the other counter was trying to deposit his paycheck. I thought to myself “What year is this? Can’t he just at least use mobile deposit save himself some time?”
Financial institutions are constantly innovating and trying to make things more convenient, so take advantage of their innovations. Instead of using cash, take advantage of cash management apps like Venmo or Zelle. Use a credit card to pay or a debit card if you don’t trust yourself with the ability to borrow until the payment is due. If you are still getting paper checks, then talk to your employer to switch to direct deposit. Seriously. I know there are still some holdouts out there. At the very least, use mobile deposit instead of running to the bank to line up.
Choose Paperless, Please
Hopefully, you’ve switched all the bills and statements to be sent to you electronically by now. There’s the obvious benefit to the environment, but the benefits extend far more than saving our trees.
When everything can be saved on the computer, it’s easier to file them properly so information can be brought up later. Plus, files are much easier to send when you need to do so, like when you need to refinance and they ask for about 100 different statements and bills.
Automation is Key
Once you switch to direct deposit, I promise life will be so much easier. That’s because money is automatically sent to your account every payday. Contrast that with having to rip the check from the pay stub, drive over to the nearest brick and mortar branch only to feel aggravated because the people in front of you is chatting it up with the bank tailors and holding up the line.
Auto-pay is another feature you should take full advantage of. Utilities, cell phone, even credit card bills can be scheduled and payment handled without you ever needing to click submit. You would want to periodically check your transaction history to see what’s going on with your spending and expenses but setting your expenses on autopilot not only simplifies the day-to-day operations but it also protects you from late fees because the computer will never forget to pay a bill.
Automation is Great for Investments Too
Now extend this idea to investments as well. Set up an automatic deposit to buy shares for long term growth. Some people call this paying yourself first. By making the investments automatic, you won’t be able to miss a contribution because you used the money already and you’ll naturally adjust your spending. This basically prioritizes your commitment to growing your nest egg over spending today.
Another benefit to paying yourself first is that because share purchases are automated, there are no emotions involved. You’ll be adding to your investments when the news is good, and also when the news is bad. Otherwise, you may be scared to invest when the news is dire and at the precise time when share price is low while only plowing money into the market when there is euphoria and the market is at all time highs.
Strongly Consider Investing in Index Funds
Of course, automatically buying shares really only works with index funds. That’s because unlike index funds where there’s a high likelihood of long-term growth, individual stocks can go down and stay down. In the worst case, some go to zero so investing automatically is foolish.
There are many other benefits of index funds. One of which is ultra-low fees, but another key advantage of investing in index funds is that you really don’t need to baby sit your investments when you are fully invested in index funds. Most people won’t be able to outperform the S&P 500 index, but even for those who do, their time is likely better spent honing their craft in their day job instead of trying to generate alpha.
Consolidate Your Investment Accounts
Most people start out well and have one bank account. Then they go to work and add a 401k. Pretty soon they have a taxable account as well. And as they switch jobs and take advantage of promotions and perks from financial institution, they now have a long list of financial accounts. It’s not unheard of for a family to be dealing with dozens of accounts spanning across numerous institutions.
Now I don’t know about you but it’s very difficult to manage your money when there are so many accounts involved. Just the sheer amount of effort required to move funds around can make a person’s head spin. Look through each of your account and make sure it can’t be combined. Don’t have multiple taxable and IRA accounts of the same type. Combine them as much as you can and watch your stress level go down.
Get a Smaller House
The bigger the house, the more things need to be maintained. When I lived in a two-bedroom apartment, I pay rent once a month and there’s a maintenance crew that’s just a phone call away if anything breaks. I never have to worry about anything and plus, nothing really breaks because there’s only a few things in the apartment to begin with.
On the other hand, I have an aunt that has a multi-million-dollar condo. There’s a gardener, a pool guy, a pest control specialist, and a cleaning crew that come regularly. Then there are all the people that come infrequently to service her appliances and systems in the house. One of her neighbors even hired someone to just to manage all those servicers. The bigger the house, the more attention it demands and the more complicated your life becomes. The house better be worth it.
Stop Trying to Optimize Your Wealth to the Nearest Penny
I love money. There. I said it. I’ve been frugal all my life and I’ve gone out of my way to save a buck or two for far too many times than I dare to admit. The mentality worked great and helped me build a solid nest egg that I am continuing to grow. Still, the utility of more money diminishes the more wealth I accumulate.
Honestly, the quality of my retirement life no longer hinges on my ability to save a dollar or two here and there. In fact, even $10 or $100 once in a while won’t matter. One day, it may come to a point where not even $1,000 will matter. On the other hand, time will matter to me more and more.
I’m Choosing to Give Up Free Money Now
I’m starting to embrace the idea that my time (and sanity) is more important. Whereas I use to have three to four credit cards each giving 5% cash back in certain categories, I now use one credit card that gives me 2.625% cash back on every purchase. With quarter limits and my spending habits, I calculated that I’m going to forego maybe $200 a year in cash back rewards. I’m giving up free money, yes. But now I won’t have to stress out about which card to use whenever I spend money and having to track all the quarterly spending limits. I also won’t have to deal with the extra accounts and bills and possibly forgetting to pay one of them and incur interest.
Furthermore, I find that I have a better handle of my expenses because the vast majority of my spending is on that one card and a quick glance at the total owed on there is enough for me to realize whether I’ve been spending more and need to tighten the belt or not. Foregoing “free money” is worth it to me. How about you? Can you simplify your life by not trying to maximize your wealth to the penny?
Choose the Simpler Life
I’ve not completely cured my obsession with numbers though. I still have an urge to take every opportunity to make more money. I still want to earn more returns on my investment. And I still want to save every penny even if I have to go out of my way to take advantage.
I am also glued to the day-to-day volatility of the stock market because I care so much. All these desires and habits add to my stress. Money is just a tool but not life itself. I understand this logically but I still let money dictate my life. I need remind myself more to consciously pick the simpler life.
The Bottom Line
Do you want to simplify your finances? Then pick the big wins and don’t worry about the little things. Find a credit card that gives you awesome rewards but think twice before you sign up for another in hopes of turning awesome into perfect.
Take advantage of those broker transfers, but don’t end up having so many accounts you can’t properly manage your investments. Worst of all, stop looking at the stock market news so often. At the very least, it’ll cause stress and anxiety. And if you let it get out of hand, it could also tempt you to sell next time there is a market crash. Plenty of people sell at the lows when there’s a market crash, and it’s mainly due to being glued to the news channel too much and letting the emotions take over at just the wrong time.
We all want to simplify our finances. Let’s work on it together.