Take the complexity out of your personal finances

On Tuesday I briefly touched on the subject of simplicity in our personal finances.

I know people who have multiple bank accounts, multiple investment accounts, plus a collection of credit cards with various benefits and reward programs. Some time a reader sent me a spreadsheet with which he “managed” his finances. Updating that seemed like a full time job.

When there are too many moving parts, many things can go wrong and affect others. We have to make sure everything is in sync and that can be stressful. Also, it can mean diverting time from things we really enjoy.

On the other hand, when we have a simple and simple configuration, it is much easier to maintain control.

We have to understand that financial success has nothing to do with accurately recording even the fifty cent piece that fell out of our pants.

Nor with moving money from one place to another in separate accounts or with using a different credit card each week to “invest” that money for a longer time, until the payment date arrives.

Success has to do with having a manageable, simple system that works for us. May it give us clarity and direction, may it give us peace and take away stress. To focus our mind on other important things.

A long time ago I had a complex system. They paid me per month. Every time I received my salary, I immediately transferred it to a daily liquidity investment fund.

I had three credit cards, each with different cut-off and payment dates. He used them strategically so he could get the most out of the free financing. I felt “smart” because being total, I did not pay interest to the banks, but I did generate it by keeping my money invested.

More than once, being busy at work, I missed the deadline to withdraw my money from the mutual fund just the day I had to pay the card. I did it the next day early and luckily there were no consequences, but I felt extremely stressed.

I also came to have four different accounts in an investment fund distributor, for different needs: wealth savings, my daughter’s education, emergency fund and vacation savings. I thought “separating” my money into individual accounts for different purposes made sense. There are still “specialists” in personal finance who give that advice.

So every month when I received my salary, I would go into the bank and make five transfers: to my investment fund and to these four separate accounts.

It was crazy, because also, each one of them had a different investment portfolio. Then he had to make calculations to optimally allocate what was deposited to each of them.

Obviously this was not sustainable. The time came when the opportunity to buy a house arose and I took money from all these accounts for the down payment.

Today I only manage a bank account. Every time I receive my salary, instead of “investing” that money while the deadlines arrive and earning a few extra pesos, I better make all the payments for the month and forget about it. Much simpler.

I like to use a credit card for all my purchases (I don’t go into debt, I always pay the balance in full each month).

I do this because I feel more secure. I still have two (no longer three as before) but one is the main one and the one I use for everything. I have the second one only as a backup in case the first one has unrecognized charges (it has happened to me and the replacement of the plastic sometimes takes many days).

The above has also helped me to have all my “points” in a single rewards program instead of being scattered in three different ones. So I put together the ones I need faster.

In addition, my main payments are domiciled (also part of my savings). Although in Mexico many times this does not work so well. At some banks, if the card has a “prevention block” right when the charge falls, it may be declined.

Every time I receive my salary, I simply focus on my spending plan: I assign a job to each peso I earn.

I have much better control of my money than before, when I had a complicated system (I mistakenly thought what it was doing was “smart” and “great”). I feel more calm and less stress.

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