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Like many HD readers, I really enjoy the writing of Morgan Housel. He recently wrote
“You should obsess over risks that do permanent damage and care little about risks that do temporary harm, but the opposite is more common.”
This tapped into a train of thought that I’ve been on recently – focussing on the important stuff. Or, as on old boss of mine use to say, “The main thing, is that the main thing, is the main thing”.
We live in a messy, complex world.
When I use my web browser, it lists a multitude of news stories that are all jostling to be seen as the most urgent, critical, vital. When I check on my favourite finance blogs, there is lots of expert analysis and advice. The links from these blogs also have lots more analysis and advice. Often this is consistent, sometimes it isn’t.
Most importantly, this torrent of news and advice is so often focused on minutia.
• Choosing one particular type of account rather than another because of a tax advantage.
• How to find “optimisation” in your asset allocation – how often should I rebalance, how should asset allocations change with age etc.
• How to maximise your credit score.
• What will happen to various investment options in the next day, week, month or year.
It seems to me that pursuing these many and various personal finance quests probably does two things – leads to mental exhaustion, and has little impact on reaching a comfortable financial life.
I have come to the view that as human beings we are likely better off keeping a very short list of important things that we devote our time and effort to.
With absolutely no claim for these to be correct, I’ll offer some of mine.
In business:
– Keep our staff happy and safe
– Focus on our customers and their satisfaction
– Focus on the big items of revenue and expense, rather than “nickel and dime” items.
For our personal finances:
– Be sufficiently frugal so there is always something left over
– Put every single dollar to work – either paying down debt or invested into simple, low cost funds
– Stay committed to the long term, ignoring any short term oscillations
This approach has served us well. Our priorities won’t be for everyone, and I’m certainly not smart enough or qualified enough to offer them as advice to anyone else.
But I am firmly convinced that simple is better than complex.
Nice list. It is good to keep perspective, and the world is often as messy or complex as we make it to be.
The goal of having simplicity in one’s financial affairs is a good one. Unfortunately, in the US, the more successful you are in your working life, the more assets you accumulate, the more complexity increases for you. Our tax code is extremely complex. Worse, there is no general consensus, as Australia has, which would allow a national pension scheme to be developed. Nor, do we have any societal agreement on how to deal with healthcare, eldercare, or anything else.
I don’t think that’s universally true. While we don’t have a single-payer setup like Oz and many other countries, between ACA (healthcare) and Medicare (elder care) we do offer coverage to a large swath of the population that doesn’t have health insurance coverage through their employer. (and FWIW, when I lived in Oz it was a two-tiered (or more) system for healthcare. Everyone was covered with a basic plan, but you could buy higher level plans to get access to a wider (aka better) selection of providers).
As for pensions, many people do have access to some form of DC plan, which admittedly is not as good as Super, but it’s better than nothing. The trouble is many people don’t take full advantage of it while they’re young and working – they’re too busy spending on the next nicer car or next bigger house when they could be plowing as much as possible into some type of DC plan.
“But I am firmly convinced that simple is better than complex.”
Absolutely correct.
Although my past and numerous efforts at trying to make that point have, alas, failed miserably.
During the time I’ve been reading HD I have consolidated and simplified our finances a great deal. I’ve gleaned many good ideas from the contributors here, not the least of which is you Dear Dicky. Thing is, if we attempt to help 100 people, we’re lucky if even one takes our advice. That was certainly my experience as a union rep, I bet yours as the big bad HR guy wasn’t much different.
No different at all and as you know quite frustrating. I recall many meetings with union leaders where they expressed frustration with their members who failed to pay attention to and take advantage of what we had negotiated – and then complained about what they didn’t have, but actually did.
Years ago one division supported by the union ran a massive fund raiser to cover medical costs for a members sick child. The thing is he didn’t have any significant out of pocket costs because the plan paid for the care.
Part of our contract was often that I would provide extensive communications about changes made.
Sage advice both on business and personal finances.
I am not too familiar with this blog (came here only recently after I read an article by Jonathan in the AARP magazine) and perhaps you folks are already aware of JL Collins. He wrote a book which is fairly popular I believe (The Simple Path to Wealth) that can perhaps be summarized in a sentence. Spend what you must, save the rest and invest in VTSAX. Captures all your three points I believe.
I should say it has helped me much, and more than finances perhaps for my peace of mind.
Well over 50 years ago and long before I knew who John Bogle, JL Collins, J. Clements and others were, I read The Richest Man in Babylon. The message in that book offered great savings guidance on the path for retirement. Most authors in the last few decades strengthen what that book is about, plus giving additional guidance towards index investing.
Thanks for pointing that out!
I dabbled in stocks for a while and believe I learnt my lesson (a few times, the same lesson) when I found what I needed in reading JLC; his book and his blog. I bought a couple of copies for my kids. Hope they read and learn in a timely fashion so they don’t have to do the harder way.
I have not gone back and read the book.. No need 🙂
Actually he says “spend less than you earn, invest the surplus, and avoid debt” He also says ideally save 50% of what you earn.
The problem with spend what you must is how people define “must.”
What I have said and been criticized for is save first, never end the month with a credit card balance and spend what is left – no budget needed.
The percent to save is the key, but for most households it is hardly near 50%.
I am sure you are right as to what JLC said exactly, and what his recommendations are in saving goals. Thanks for being precise.
What I state however is my summary at this stage of my life. While I am not the “FIRE” type of a saver, and not “frugal” by any means, my mindset is being minimalistic with regard to spending while being appropriate for the purpose. That is what I mean when I say “spend what you must.”
Great post! We pay for needless complexity twice: once in opportunity cost, and again with greater risk of bad outcomes.
Agreed – I hadn’t really thought about it, but opportunity cost is a big part of this. The time spent agonising over all these decisions could have been spent on more fulfilling and valuable tasks.
How many high-yield savings accounts do you have open? How many credit cards to you have?
I used to move chunks of our cash savings around for a couple tenths of a percentage point in interest. I decided it was worth more to me to have all of our cash in one place – the brokerage where we also have our investment portfolio – than it was to get a couple tenths of a point in interest. Fewer emails pitching me on another great deal; fewer statements; fewer 1099s. Simple is good.
Same thing with credit cards. No more chasing airline miles (they’re a pain to use anyways). No more buying gas only at this station. One card, cash back on everything. Done. Simple is good.
tshort, these are exactly the things where I have chosen to do without complexity. I’m sure that someone could demonstrate to me the monetary gains that I could make by switching accounts or collecting credit card points. But I would rather spend the time and energy on things that I consider more worthwhile. And I suspect that investing that effort into my career and small business (rather than into financial minutia) has paid far higher dividends.
I don’t know about the last point. I’m on the last day of a very nice vacation in French Polynesia to celebrate my retirement. We got from LAX to Tahiti on a business class flight on Air France thanks to my credit card miles. We’re staying at an extremely lovely resort on Bora Bora thanks to my Marriott Bonvoy points. I would never have paid cash for either of those things, but amassing points/miles through everyday spending (and some savvy use of sign-up bonuses) was not only fun but gave us “permission” to celebrate this milestone in style.
I do think, however, that I will stop playing the points/miles game—or at least dial it way back—over the next five years, mainly because as I age, I don’t want to have anything too complicated to keep track of. I’m already in the process of simplifying our retirement and savings accounts.
I agree. Not chasing savings accounts for better rates, but we do have and will continue to have more than one credit card.
If for no other reason, if one is compromised, it’s very helpful to already have another.
Excellent piece. Life certainly is better when we don’t make things unnecessarily complex.
As my German professor used to say, “Take care of the little things and the big things will take care of themselves.”
Greg, thanks for a thought-provoking article. I think Housel is a good writer, boiling things down to their essence. But I also think we should remember Einstein’s admonition that “Everything should be made as simple as possible, but not simpler“. This has been interpreted as trying to find the balance between clarity and accuracy.
I really like your personal finance list of important things .As you write “We live in a messy, complex world.” It can be a challenge to find that balance in our complex world. Your 2nd point – using every dollar – reminded me of a situation some 30 years ago when a friend and colleague enlisted me to figure out what to do with “excess” paychecks. He was considering further investing or paying off his mortgage. It made for some interesting discussions and helped me develop some of my thoughts on personal financial planning.
Thanks Rick. I agree with the notion that “everything should be made as simple as possible, but not simpler”. There is certainly more complexity in my life than I detailed in my piece, but whenever I have a choice between complex or simple, I certainly steer towards the simpler option.
One of my favorite quotes.
Good list. No improvement from me.
More than a quarter of a century ago I accompanied my then 11 year old teen daughter and another youth softball pitcher to a skills and motivation camp held in Tifton, GA. The Higher Ground camp was founded by a man named Bobby Simpson who annually cobbled together a volunteer group of past softball players, some college coaches and assistant coaches for a two day camp for girls age 9 and up.
Back then I had also umpired youth softball and volunteered at that one camp to call balls and strikes because they needed a warm body to help. My tangible reward for doing so was a T-shirt emblazoned with the organization motto’s of “Doing Better Everyday” and “The main thing, is the main thing, is the main thing”.
Funny to me how learning to approach problem solving and practicing those necessary skills have come from unexpected sources during my life be them on a dusty field in Georgia surrounded by peanut farms or reading a blog where the writer shares what has worked well in their life.
Count me on team simple.
Thanks William. I like the idea of being on Team Simple!
Great contribution,
The Pareto Principle, or the 80/20 rule, is the perfect lens for this. Your article perfectly captures how 80% of financial success comes from just 20% of your actions, a concept that’s universal no matter if you’re an Aussie, American, or Brit
.