I Like to KISS … My Finances, That Is
Executive summary: I live my life by the KISS (keep it super simple) philosophy, and that applies just as much to my financial life. Plus, personal finance FTW!
Early every January, my husband and I sit down for a couple of undisturbed hours (non-existent outside of baby’s naptime now) to review our financial status and make plans for the coming year. We firmly believe that everyone should be knowledgeable about their own financial situation (which is not always the case when one person acts as the family “financial manager”), and this has not changed one iota since I quit my full-time job. In fact, I could argue that it’s even more important for me now to have a hand in our family’s finances. This is a separate rant, but I can’t believe that personal finance is not a required course in high school, or even college. What is the use of 4 years of English pulling analyses of old books out of our a$$ when we don’t even know what a credit score is or what asset allocation means? I may be biased as an economics major and MBA (who did take a personal finance seminar in college and found it more useful than any other class I’ve ever taken), but really, we can’t spare one single semester to teach personal finance basics but can afford to devote 8 of them to making up sh!t on books by dead white dudes? Like I said, I digress.
I’m a huge proponent of taking a personal finance course at some point before becoming responsible for your own financial decisions.
As a minimalist, I like to KISS (keep it super simple). My finances are no exception. It might help that we have a very straightforward family situation, with no previous marriages, children, or other responsibilities to complicate our financial lives. But speaking for me personally, it would stress me out to keep track of 20 accounts and a dozen credit cards. My husband and I limit ourselves to:
A checking account apiece (our “working capital” to pay the monthly bills)
A shared savings account (our larger “emergency fund”)
A set of diversified, low-fee index funds (for the purpose of protecting long-term retirement savings from inflation, not to strike it rich)
401(k)s / IRAs to take advantage of employer contributions and tax-deferred growth. (Whenever we switch employers, we roll over the employer-held 401(k) into a personal IRA, so it all stays in one place no matter how many times we change jobs)
A primary credit card apiece and one shared backup card (for those inevitable times the bank freezes our primary card to prevent fraud but the replacement hasn’t arrived in the mail yet)
We don’t even have Venmo, that’s how crazy minimalist we are. @_@ At this point, we don’t have debt either (e.g., mortgage, car payments, student loans), so it’s easy for us to KISS our finances. We also don’t feel the need to jump on every deal (open an account and get $50!) or pick out individual stocks or funds (historically, actively managed mutual funds have rarely outperformed the broader stock market over the long term), which you can argue is privilege or personal taste or both. That’s fine. I’m not a financial advisor. I’m an ex-banker minimalist who looks at data to make my own financial decisions. I know there’s plenty of inherent privilege throughout this post (people living on the margin or without steady employment would hardly be thinking of IRAs and expense ratios and personal finance classes), but clearly I’m writing this as someone who has the wherewithal to make deliberate financial decisions and likes to KISS.
Finance can seem complicated and intimidating, but we boil it down to the basics for our own personal purposes.
As part of our decision-making process, my husband and I take stock (pun intended) once a year of where we are financially so we understand what kind of goals and limits to set. We keep track of everything in a spreadsheet dating back to when we graduated college and got married, i.e., when we became fully financially independent 21-year olds with jobs and taxes. It’s a three-step process:
We log into all our accounts and record the balance as of Dec 31 to get a sense of our overall assets (which do fluctuate daily with the market, so it’s just a ballpark figure).
We make high-level projections of our earnings and taxes for the upcoming calendar year and estimate our monthly cash flow (in and out).
We decide how much we want to allocate to stocks vs. bonds vs. cash, and that’s how we determine how much to keep in the bank, put into index funds, etc. over the coming year. As a general rule of thumb, we can be more aggressive now (hence stock-heavy) given the longer time horizon until retirement, and will invest more conservatively (more bond-heavy) as we age.
This exercise doesn’t take more than a few hours a year, but it helps my husband and me to be on the same page financially (which can be a point of contention in relationships) and to take joint responsibility for maintaining our family’s financial health. The way that we’ve set up our financial lives is a personal decision based on both subjective preferences (e.g., risk tolerance) and on facts that are objective or mathematical (e.g., historic market returns, or how compound growth works). I wish that knowledge were more widely disseminated. I’m not sure why I had to take a quarter of Home Ec making lemonade and sewing a pillow but not learning why you should pay off your credit card in full every month lest it becomes a snowballing debt trap. No one ever ruined their life by overcooking scrambled eggs, but people do make disastrous financial decisions out of ignorance or a lack of understanding what they’re getting into. Do I digress again? Then I’m going to take myself off for my annual session to KISS my finances … and maybe my husband while I’m at it. :-*