Sunday, July 27, 2008

Keep it simple

As I mentioned yesterday, in any aspect of your financial life, when given the choice between simple and complex, it almost always is better to go the simple route.

Few investment and banking accounts tend to be better than more accounts.  The more accounts that you spread your money into, the less likely your money is efficiently working for you.  Fewer credit cards are probably better than more credit cards.  The more cards you have, the more likely you are to rack up debt or miss a payment - both of which are detrimental to your financial goals.  Straight-forward investments are almost certainly better for you than more complicated investments.  The more complicated a financial product is, the more likely that it is a better deal for the seller of the product than for you.  This rule tends to apply across the board to investments, insurance, mortgages, you name it.

One of the best parts of this philosophy is that it means you don't need to have a PhD in economics or keep up all all of the latest trends in finance to meet your goals and to be successful.  Consider the millions of Americans with interest-only or any of the other new and complicated home loans.  How many of them would wish to go back and choose a simpler loan if given the chance?

The simpler your finances are, the easier it will be for you assess your own progress, stick to your plan, meet your goals, and keep fees down. 

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