Creating Financial Simplicity

Over time, financial complexity begins to enter our lives.  I always encourage clients to simplify their finances as much as possible, because simplifying your financial life will make your life better in the long run.  In this post I’m going to tell you why financial simplicity is important.

How can you stay focused on your plans and make good decisions when you are confused?  By following the rule of simplicity, you can guide yourself to avoid financial mistakes.   The reality is that making things complex is relatively easy.  Crafting simplicity is hard.  Fewer service providers, accounts, and fund holdings mean less confusion.

By following the rule of simplicity, you can immediately avoid purchasing complex annuities, expensive life insurance, and silly investment strategies.  Financial products and investments that are complicated and difficult to understand are usually not good for you.  Be wary of complex strategies.

With less time and energy spent on finances, it means there is more time for fun, the other more important things in your life.

What can you do now?

Maybe you changed jobs over the years and left behind several old 401k retirement plans.  In most cases it makes sense to either consolidate these into a single IRA or into your current employer’s plan as long as it is a good plan.

Maybe you started a side business, became self-employed, or converted a previous residence to a rental property.  If you always did your taxes up to now by yourself, now might be a good time to consult a good CPA so that you can simplify your life at tax time.

Do you have any existing life insurance policies and annuities?  Permanent life insurance and annuities can be exchanged and consolidated through a special IRS rule, and can even be used to pay for long term care premiums tax free.

Active funds can produce unpredictable capital gain distributions.  Avoid market timing and trading strategies in favor of a buy and hold portfolio of index funds.  This will not only very likely result in better results over the long term but also reduce complexity at tax time.

Consolidate those old bank accounts. I see no reason to open another online bank account in order to get an extra 0.25% in interest.  Are there better uses for your valuable time?

Clean up all of your important documents and put it all in one place in your home.   This is important because it will make it easier for your spouse or other family members to understand your family’s financial picture if you were to become unavailable.

There are so many things most people could do to make their financial lives less complex.  Ultimately, it’s worth striving for simplicity because it makes your life better.   A good financial planner can help you to move forward with some of these ideas.  Contact me Here.

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