Simplify, Simplify, Simplify
One of the biggest myths in the personal finance space is the idea that in order to be financially successful, one must have sophisticated or complex finances. In most cases, the opposite is true. Simple wins.
I recently sat down with a couple to help them understand their financial structure. However, it took me a while to understand it before I could even help them understand it. Money was coming and going every which way, and they had bank accounts coming out of their ears. They practically needed a treasure map to adequately interpret the lay of the land.
When I explained to this couple how I structure my personal finances and how I coach other families to do it, they looked shocked. How in the world can it be that simple?!?! After having a similar conversation with two more people yesterday, I thought I'd share it with a wider audience. Want to know just how simple this can be? I'll show you the base structure for day-to-day finances that works fantastically for most couples:
ONE Joint Checking Account. This is the account to which all income flows in, and all expenses flow out. Each person has a debit card tied to this checking account.
ONE Emergency Fund. This is a savings account tied to the above checking account. The purpose of this money is to save us in the event of an emergency. It may not earn much interest, but the money can be accessed at a moment's notice, when life punches.
Sinking Funds. A few named savings accounts are used to save for specific categories. Car, house, travel, and medical are common categories. These are future expenditures that cannot always be absorbed via the monthly budget (such as the $1,600 car repair bill I experienced yesterday). Sinking funds can be housed at the same institution as the two accounts above, but they don't have to be.
That's it. Seriously, if all you have are those accounts, you're positioned to be more successful than 90% of people out there. It's the introduction of credit cards, multiple checking accounts, and random, unpurposeful savings accounts that complicate things. In my professional experience, every layer of complexity that gets stripped away brings people closer to their money.....and ultimately, their goals.
I suspect I'll take some heat for this one, but after working with hundreds of families and diving into the behavioral science of these concepts, I'll die on this hill. Simplify, simplify, simplify. There's no way to outsmart simple. When we spend less time thinking about what goes where and more time on trying to live a meaningful life, the finances become the easiest thing in the world.
You don't have to fully buy into this idea, but I challenge you to simplify one thing in your finances this month. If it makes your life better or easier, simplify one more next month. Repeat. I don't think you'll regret it.
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