I’ve often said that simple is better because simple gets done. Yet too many people make too many things take too much time. Previous posts have highlighted both the monetary and general benefits from financial simplification.
Few financial experts understand the benefit of providing simplicity to their audiences. Liz Pulliam Weston is an exception, and she takes it a step further. Not only are her lessons easy to understand, but also financial simplification itself is the centerpiece of her message. In fact, her new book is called Easy Money: How to Simplify Your Finances and Get What You Want out of Life.
Recently, I had the pleasure to chat with Ms. Weston about financial simplification. For those of you who have somehow not yet been exposed to Liz, she is the most-read personal finance columnist on the Internet, according to Nielsen//NetRatings. She’s also an award-winning, nationally-syndicated personal finance columnist, whose columns run twice a week on MSN Money, which reaches more than 12 million readers each month. Millions more read her question- and-answer column “Money Talk,” which appears in newspapers throughout the country, including the Los Angeles Times.
Well enough about her, let’s hear from her:
Beyond Paycheck to Paycheck: When it comes to managing money, do you think people make things more complicated than they need to be?
Liz Pulliam Weston: Almost everybody could use an annual session about how they’re spending their time. People are worried about screwing up by changing something that they’re used to. They don’t recognize the downside of not doing anything.
For example, with an IRA, there are real costs to not simplifying. Never consolidating your IRAs could mean you’re paying higher administrative or account fees. Plus, there are the hidden costs of overlapping investments.
Beyond Paycheck to Paycheck: Of course. By not bringing things together into one account makes it harder to see how you’re investing.
Liz Pulliam Weston: Yes, it likely means you’re also not properly allocating your investments. The result is that you may be overly aggressive or not nearly aggressive enough with your investments.
Beyond Paycheck to Paycheck: Simplification would certainly help there. I’ve talked about simplification myself. Why do you find that some people struggle with this concept while others do not?
Liz Pulliam Weston: There is a personality that doesn’t trust the web—even among those reading your blog! While they may use the Internet all the time, they have insecurity about having their information on the web.
Plus, a lot of people are really busy. They rush from urgent to urgent without looking at the important. (Think: Covey framework.)
But if you invest the time upfront, you get it back tenfold. Security is the same way.
Beyond Paycheck to Paycheck: How so with security?
You’re actually safer with online bill pay. People who monitor their accounts online are much more likely to catch fraud earlier and get it before it gets too big.
As I said, some are concerned about accessing their information on the web. But online statements are encrypted. Your checks aren’t encrypted and your statements that come in the mail certainly aren’t encrypted.
Plus, using online bill pay means you’ll have an electronic trail that shows when you make the payment and when it was received. A check leaves no such trail, yet has much of the information a criminal would need such as your checking account number, name, address, and routing number. Still, most people don’t perceive the risk of using checks.
Beyond Paycheck to Paycheck: But are there real financial costs of failing to simplify?
It really does cost you money. Even paying 1% more in fees or earning 1% less in return can make the difference between a fairly comfortable retirement and one where you’re scraping by. Simplifying is definitely worth taking the time.
Beyond Paycheck to Paycheck: What about a short-term cost from not simplifying?
You’re much more likely to pay a bill late. As you know, banks and credit card companies are happy to slap you with a fee because of a late payment.
Or, look at your credit score. If you skip (or miss) a single payment, you can knock 100 points off your score. It’s never been more important to have a good credit score than right now. Credit card interest rates are going up. If you have good credit, you can still get a zero percent loan. Lenders are still falling over those who have good credit.
Yet that one mistake, that one missed payment, can take months–if not years–to bounce back from.
Beyond Paycheck to Paycheck: Are there examples of simplification ideas that you don’t recommend because they may be harmful or at least aren’t helpful?
I no longer recommend closing all credit card accounts you no longer use. However, you can consolidate and just use a couple of cards. This will give you less due dates to keep track of.
But the key with credit cards is to not overuse them. You don’t want to use more than 30% of your credit limit.
Beyond Paycheck to Paycheck: There’s an irony here, isn’t there?
Yes. Whether you carry a balance won’t impact your credit score. But if you max out your limit, that will show up, even if you pay the whole thing each month.
Beyond Paycheck to Paycheck: What about credit monitoring? I’ve seen that presented as an element of financial simplification.
Credit monitoring is not necessary. Monitoring can’t prevent identity theft, it just means that you’ll find out about it sooner. However, I do recommend a credit freeze if you’ve previously been an identity theft victim. Other risk factors include theft of your Social Security number or if there’s an addict in your family. Such people are at higher risk and credit monitoring could make sense.
There are worse ways to spend your money than on credit monitoring, but it’s just not necessary for most people.
# # #
There’s little doubt that those who can simplify are able to take advantage of life’s little perks and loopholes. They’re the type of people who can use credit cards responsibly to take advantage of the rewards, have it not impact their spending, and pay it off each month. Others take out 0% loans, put the money into high interest savings accounts, and pay the loan back before it comes due, pocketing the interest. These can be the benefits from appropriate long-term strategies for those who have simplified their financial lives.
But in the short-term, Liz gives some solid suggestions, as well as the benefits of those suggestions, for some very quick and meaningful wins from simplifying your financial life.
So, now what do you think about financial simplification?
“personal finance” 
“financial education”
Loading ...
