“‘Tis the gift to be simple,” begins the legendary Shaker dance song, “Simple Gifts,” written in 1848 by Joseph Brackett. And while virtually all of the world’s major religions have extolled the benefits of simplicity for millennia–many even making it a central tenet of the faith–the nothing-short-of-religious pursuit of money is marked by scores of painfully circuitous paths.
So, if you are one who enjoys being overwhelmed by hordes of statements for a collection of seemingly random latest-and-greatest investments, if you are prone to bending the tax law to the point of breaking in search of every last loop-pin-hole that might squeeze out an extra buck, if you are into manufacturing tax-privileged growth investments out of insurance policies optimally suited for another objective, if you enjoy bouncing debt from lender-to-lender, and you’d prefer to live on the hairy edge of financial sanity rather than rest in financial peace, this post might not be for you. But if something in you yearns for a simpler financial existence, consider these three recommendations designed to reduce stress and increase efficiency:
1) CONSOLIDATE – How many 401(k)s do you have from past jobs still languishing in the old plan? How many IRAs or regular, taxable investment accounts do you have? How many bank accounts do you have, with how many banks? Credit cards? Mortgages? How many financial advisors, stock brokers or insurance agents do you attempt to integrate? I think you see where this is going…
You don’t need more than a single, current 401(k), 403(b) or other retirement plan–the one with your current company. Then, you need only have a single Traditional IRA, which should likely be the receptacle for aggregating your old tax-deductible retirement plans. If you’re self-employed, you may combine both of these into a single SEP IRA or individual 401k. Hopefully, if your income falls below the threshold, you have a Roth IRA, storing up tax-free money for what is likely to be a tax-heavy future–but you only need one. If you’re blessed to have money to invest beyond retirement vehicles, you need not have more than a single taxable, liquid brokerage account. And in all likelihood, you don’t need more than one checking account and one savings account with one bank. One of each–401k, IRA, Roth, liquid, checking and savings. (There are exceptions, of course, but they are unique.)
Maybe you prefer to have multiple financial advisors–pitting different investment or financial philosophies against one another–but it probably means you simply haven’t found one advisor you actually trust. Larry, Moe and Curley may be competing for your business to your detriment if they’re not each aware of the other’s strategy (and willing to accommodate). When you enter into a trusting relationship with a single advisor–a truly professional (ideally fee-only) financial planner–he or she should have a suite of vetted referrals for all of your investment, insurance, tax and estate planning needs.
More is not better; it’s just more.
2) PRIORITIZE – Whenever I deliver a slate of categorized recommendations following a comprehensive financial review for clients, I invariably see a palpable sense of relief come over their faces and a burden lifted from their shoulders. Yes, knowing what we need to do is indeed cathartic, but we still haven’t accomplished anything! And a truly comprehensive financial analysis will likely unveil enough actionable recommendations to take months to complete. The first step, therefore, is to prioritize, and while your internal compass should be your primary guide, your advisor can and should help with this process as well. You hope to increase your retirement savings, save for education, increase your emergency reserves, pay down debt and revise your estate planning documents, but there is only so much time in the day and money in your wallet. A simple prioritized list can be your guide through the implementation process, which takes on a circular form as life and laws change.
3) HIRE A QUARTERBACK – Yes, I acknowledge that this suggestion may appear biased coming from someone who makes a living giving financial advice, but I do believe that having a genuine relationship with a knowledgeable, experienced, educated, credentialed, fiduciary financial advisor can be the cornerstone of a simpler financial life. Yes, there are many “advisors” out there whose benefit to you–net of fees and expenses–is negligible, and some whose net effect is sadly negative, but I am buoyed by a movement from within the industry away from sales to true advice. Although it may seem like a secret, real financial planners are to be found, and a good starting point is the advisor search on www.napfa.org, the financial planning association with the highest continuing education requirements and a no-commission mandate.
Or, you could, in addition to maintaining your expertise in your profession and giving your family the time they deserve, become a bona fide expert in investments, insurance, taxes, retirement planning and estate planning on your own. But that doesn’t sound very simple, does it?