Simple financial strategies get much less attention from the talking heads on CNBC than complex ones. Hedging, shorting stocks, and cryptocurrency attract headlines “above the fold” at the Wall Street Journal. These articles are intriguing but most of the information is not actionable for most of us.
The host of Mad Money, Jim Cramer, will rant and rave about the latest stock pick and attract millions of views. Your grandma elicits an eye roll when she speaks of living frugally. Cramer is a multi-millionaire. Grandma drives a Buick.
Financial strategies are often overly complex for various reasons. The intelligentsia loves to feel superior by throwing out ten-dollar words. Ten-dollar words are awesome for Scrabble but rarely help us in winning at wealth.
In every disaster throughout American history, there always seems to be a man from Harvard in the middle of it.
Dr. Thomas Sowell
A degree in finance or an MBA is valuable in many situations. They don’t always translate into a higher net worth, though. I agree wholeheartedly with Dave Ramsey that personal finance is more behavior than head knowledge. However, financial strategies are needed.
Simple financial strategies are superior to complex strategies.
Here are eight simple financial strategies for your consideration.
Simple Financial Strategy #1 — Optimize Earnings
It’s been said by many offensive coordinators that, “The best defense is a good offense!” Running up the score is a sure way in which to win a game. Score more points than you allow and BOOM — winner, winner chicken dinner!
Is earning more money that simple, though?
Most people receive pay raises each year. If you’re at the same company those raises can be as high as 5% for the same job. That’s not a bad strategy. If you truly love your job stay put. Why leave? The grass is not always greener.
Sometimes, however, the grass is greener. When you leave one company for another you have total control over your salary. These are the times in life when a 10% or 20% pay raise is possible.
I’ve taken a hybrid route. In the past seven years, I’ve changed jobs four times within my company. Each change had a positive salary implication. I maintain the benefit of time in service (more vacation days) while leveraging increased salaries.
Earning more money is a simple financial strategy (link to an article I wrote on drastically increasing your salary).
The recipe is simple: planning, elbow grease, and patience.
Simple Financial Strategy #2 — Stabilize Spending
For every offensive coordinator stating that “The best defense is a good offense,” there is a defensive coordinator shouting “Defense wins championships!”
The Baltimore Ravens won a Super Bowl with stellar defense and an average offense. Scoring points is usually more fun but winning is the most important thing.
We all have some control over what we buy and how we spend our money. No one truly forces us to overspend on groceries, clothing, or new automobiles. Yet this happens often.
It’s estimated that 60% of millennials earning six-figures live paycheck to paycheck. It’s not just millennials. Nearly 40% of all Americans earning six figures are living hand to mouth.
Curbing spending is not nearly as fun as earning more money. Both are important when attempting to optimize wealth creation. Just don’t become the family ogre! Trim savings incrementally and regularly.
Spending less money is a simple financial strategy that should be implemented at all times.
Simple Financial Strategy #3 — Downsize Debt
Debt is not dumb. It just isn’t always the best strategy. A debt-free life does not guarantee wealth creation, either. It’s that old causation and correlation conundrum.
Families, however, rarely get rich by using debt.
Debt can be a trap. Often, families are impatient with simple financial strategy #1 — earn more than you spend. Instead of waiting for earnings to increase they borrow a lifestyle that has not yet been earned.
If you’re carrying a credit card balance then you’re living beyond your means. I’m not against credit cards. I am against unpaid credit card balances.
What are some good examples of debt?
Borrowing money for a house can be good in the right circumstances. Taking out a loan for college, in some instances, can be a good money move. I’ve known people who successfully borrowed money to start a business. Others have failed miserably and still had a loan to repay — caveat emptor.
Never carry a credit card balance. If you can’t pay it off before it’s due then you can’t afford that object.
Automobiles are a tricky sort of situation. Personally, we pay cash for our cars. We also buy modestly.
Leveraging debt strategically is a simple financial strategy that will save you future pain.
Simple Financial Strategy #4 — Prioritize Savings
I’ve always loathed the term sinking fund. It just didn’t project confidence. The same thing goes for the term emergency fund. Yikes!
I use the term “peace of mind” fund instead. How many peace of mind funds should a person or family have? Well, that depends on a few factors.
Everyone should have a basic rainy day type peace of mind fund. How much should be in it? Professionals typically lean towards the three to six months expenses category. That’s a ton more than most Americans have. Is it enough, though. It’s a great start!
Many families will not sock anything away because they feel as though they will never reach those milestones. That is tragic.
Start where you are and branch out from there. These things can take time. Patience is vital.
Take inventory of your life to determine fund examples. Families with children and a mortgage will have different needs than a recent college graduate.
My wife and I have the following funds: house repair, car repair, car replacement, car insurance, house insurance, real estate taxes, health savings account, loss of job, vacation, and Christmas. It’s actually just one savings account with the amount spread out in Excel.
We started with zero savings. Then we had one account. Now we have ten savings buckets. That didn’t happen overnight. It didn’t even happen over the course of a year. We’ve been working at this for almost thirty years.
Keep moving forward and refuse to give up!
Prioritizing savings is a simple financial strategy that is easy to scale.
Simple Financial Strategy #5 — Rightsize Risk
Insurance is not a waste of money. It is used to transfer risk and should be done strategically.
Automobile insurance is mandatory – at least in most states. House insurance, where there is a mortgage, is required by the lender. There are other types of insurance that are optional and others that are superfluous.
Health insurance is expensive. Few of us have tens of thousands of dollars collecting dust at the bank. A burst appendix, emergency room visit, or some other situation would drain pretty much any person’s savings account.
This is why we transfer risk.
Insurance companies are willing, for a fee, to assume the risk of almost anything. I highly recommend working with a trained insurance professional in your area. Steer clear of insurance companies with clever television commercials. Those advertising budgets are paid indirectly by the customer.
If your company offers life, health, vision, disability, and dental insurance investigate and make a decision. Life insurance is one policy that should never solely be tied to an employer. Disability insurance is one that is difficult to get outside of an employer.
Proper insurance coverage can be challenging. Being overinsured is unwise and being underinsured is dangerous. Rightsizing risk is both art and science.
Transferring risk is a simple financial strategy and proper balance is essential.
Simple Financial Strategy #6 — Strategize Investments
Investing for long-term wealth optimization is not the same as gambling. In gambling, the house wins or they would not remain in business. There are financial ups and downs through investing. However, the stock market, on average increases year to year.
Mutual funds and exchange-traded funds have built-in diversification. Most of us should lean towards these types of stock investments. Yes, you might get lucky with an Amazon. You also may lose everything with a dud like Enron.
There are many investments other than stocks. I know families who invest in residential and commercial real estate. Others own small businesses that generate profits.
Even hiding money under a mattress has its own set of risks and is not safe. The money could be stolen, and a fire could destroy it, but most likely the purchasing power will erode because of inflation.
Investing for your future is a simple financial strategy.
Simple Financial Strategy #7 — Radicalize Generosity
The Dead Sea is a great example of selfishness. It is stagnant and lifeless. Water is received but not given.
The same applies to our lives. If we only receive money but never practice generosity then we too can grow stagnant.
How much we give is often immaterial. Sharing a quarter at Aldi is an act of generosity that almost anyone can do at any time. Giving $100 to a homeless shelter is awesome but not everyone can do that.
It’s vital to practice generosity early in life and start with smaller, digestible amounts. Don’t ever be embarrassed by the size of your gift — just give it with joy and cheer!
Finding someone less fortunate is not challenging. There are hundreds of legitimate agencies in need of donations as well.
I encourage you to make giving a regular part of your life and financial plan.
Practicing radical generosity is one of eight simple financial strategies ensuring maximum joy!
“It’s better to give than to receive.”
Jesus of Nazareth
Simple Financial Strategy #8 — Minimize Taxes
Taxes are a brutal fact of life. We will pay taxes. How much we pay, to some extent, is up to us. Paying more than necessary is neither patriotic nor financially wise.
Contributions to 401(k) plans, health savings accounts, flexible spending accounts, and more can significantly reduce tax liabilities.
Getting a large tax refund in the spring might seem exciting. Refunds are simply Uncle Sam repaying free loans made by US citizens.
Taxes are serious business. Don’t treat them lightly and never evade paying them. However, it is wise to minimize your tax liability as much as legally possible. Even the worst spender would use money wiser than Uncle Sam.
Minimizing taxes to the lowest legal amount is one of eight simple financial strategies that ensure more money in your pocket.
Maximize Wealth
Kiss (Keep It Simple Sammy) money stress goodbye with these eight simple financial strategies! These eight simple financial strategies can be implemented by anyone.
Work these strategies on a regular basis and your wealth will grow exponentially.