Personal finance is the ultimate example of ‘simple but not easy.’ Everyone understands the concepts – live below your means, don’t put your eggs in one basket, invest for the long run…but the truth is most people fail to execute them very consistently or effectively. We have to make this simpler if we expect people to get better at it. But our modern lives exist in a permanent state of fast forward; to achieve today requires that you reduce friction. Think about the products you use every day…Amazon, Uber, Venmo…they’re not new ideas, they’re the same old ideas built on a platform with so little friction that you sometimes forget how often you use them. Think about a product you hate…now that process feels like a nice new piece of heavyweight sandpaper (see: filing taxes, buying a car, doing anything involving a government entity…) I spend a lot of time trying to come up with reasonable ways to reduce the friction of simple financial concepts. How can we make them easier for people to apply (and thus, increase financial success over time)? Here are 5 simple, different ways that you can ‘hack’ your finances. If you’re not already trying these, let me know if they help:
- Get a password manager
Huh? I was talking about finances and now I’m talking about your cybersecurity? It’s 2019 – you probably have dozens of passwords to hundreds of websites. Ever try to login to a site and gotten locked out, then had to call the company? That’s fun, right? Sites are changing their password requirements all the time to make them harder to remember, and scribbling everything down on a post-it is…well don’t do that. I use LastPass, their tag line is ‘simplify your life.’ I have 134 websites stored and who knows how many permutations of letters and numbers and special characters. Doesn’t matter, I know it’s all there when I need it. The first thing I do with any new client is ask them to dump their data in one spot, and it’s almost always a challenge to track down passwords and paperwork. How can you implement simple financial changes if you can’t login!?! This will make your online life more secure, more efficient, and help keep your sanity somewhat intact.
- Try the 1% challenge (the frog in the pot)
Everyone has different goals, income, and savings rates. But we ALL want to save more money. I compare saving money to going to the gym: some days you’re going to hate it, you’re going to make excuses, a shiny object is going to pop up and distract you…but you will never wake up in 10 years and say ‘I wish I hadn’t done that workout.’ I promise you’ll never look back and wish you hadn’t saved. So how can we do better? I call this the 1% challenge. Whatever the number you saved last year, pick a timeline (3 months, for example) and increase the dollars by 1%. Challenge yourself to do it for some time, then see how it felt. Did your life change? I bet it didn’t. When the change is small it’s impossible to ‘feel’ it, but you sneakily increased your savings rate. Now do it again. Like the boiled frog,… you’ll never see the savings coming.
- Stop over-diversifying your investments
A lot of investors just end up with a collection of investment ‘stuff.’ Everyone knows they should diversify, they just don’t really know what that means. This starts out innocent, usually at work, when you buy some funds in your 401k. Then your uncle gives you a few hot stock tips, then you hired this one guy one time, then you hear about these ETF things, then someone sells you a crappy insurance product…next thing you know you have the Pu Pu Platter of investments. A whole bunch of stuff that doesn’t really go together, duplicates of asset classes, and you can’t even remember why you bought anything in the first place. If you’re investing for yourself, don’t make this so hard. Remember the goal is to make it manageable and reduce friction, which increases your chances of actually sticking with it. Buy inexpensive investments in the major asset categories (foreign and domestic, bonds and stocks, real estate, commodities…), rebalance them periodically…and stop with all your investment shopping. The solution to your financial situation is rarely if ever solved by adding one more product.
- Forget your budget, pick a savings number
Let’s face it; budgeting sucks. Nobody likes counting pennies and feeling bad about themselves every month, it’s tedious and it creates a negative connotation with saving. What’s a simpler way? If you have an advisor, ask them for a nice, round, savings number. If you don’t, crunch a quick number yourself (or call us). You should be able to arrive at an estimation of what you need to get to where you need to be. If your number is $10,000 this year, figure out how you’ll save that (monthly, lump sum, etc.) and just do it. That’s it. Now the guilt is gone! If you meet a meaningful savings goal, who cares how much your Amazon bill is? 5. Automate everything This one should be easy, given how much of our lives we can now automate online, yet a lot of people still haven’t gotten there and managing finances is a burden. What can you tackle here?
- Automate your bills. You’re not still writing paper checks, are you?
- Automate your savings. See #4. Figure out your number and automate the withdrawals so you never have to think about it. Start with your retirement accounts and branch from there.
- Automate your investing. Have a plan based on evidence and stick to your rules.
- Automate your measurement. Use any of the thousands of apps or online tools that can help you keep track of your finances and put your stuff in one place. One page, one glance, see you’re on track and forget about it.
Voila – you’re on your way to financial success. These are easy to implement, decrease friction and time spent, and center your life around good financial habits. Bonus: go find some money!! This really works, don’t say I never gave you anything.
Innovate Wealth aims to educate, inform, and provide perspective. We will not bombard your inbox with fluff. If you want to see more content like this, subscribe to our blog and follow us on social media!
All written content on this site is for information purposes only. Opinions are solely those of Innovate Wealth unless otherwise specified. Material presented is believed to be from reliable sources and no representations are made by our firm as to another parties’ informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.