The goal is simple finances, but discussing finances can quickly become complex. That’s because the current establishment – most banks and brokerages – make money from confusion and complexity. The less you understand, the more willing you are of paying them money to deal with it. However, that doesn’t have to be the case, and if you’re willing to spend a minimal amount of time understanding the environment, then you can easily manage your finances in a way that will make you more money at lower risk than hiring a “professional.”
Here are some terms to get used to if you already aren’t (because these are your friends and the tools you will use whether you understand them or not): compound interest, diversification, asset allocation. These will be topics of discussion along with tax reduction, portfolio vs lifestyle risks, mutual funds and index funds, and more. It’s all really simple, and just a lot of jargon, but getting used to them now will help you avoid the intentional confusion built into the market.
Generally, simplicity is an obvious virtue in other parts of your life from your love life to your education to your job. That doesn’t mean it isn’t exciting and fun, but that you get out of it what you want without jumping through too many hoops and traversing too many obstacles. Most people don’t automatically connect finances with simplicity, though. But we should, and if we don’t get it (simple finances), we should demand it because it’s our money. Getting what we want and at a good price requires a little innovation from the financial markets, though, and while these options won’t be thrown at you, there are some good choices (index funds, if you don’t want to know anything more).
Maintaining a simple financial picture, which means everything from checking and saving accounts to stocks and bonds, that doesn’t require a lot of management from you or anyone else will make you money and save you time, and over the long term – think at least 3 years if not 5 or 10, and preferably forever – that’ll add up to a lot. There are decades of public research available proving this, and I’ll highlight those in future posts as each point is raised, but you can find some of that information by looking through the sidebar links.