Yes, you can now KISS your way to financial happiness. Sounds enticing, right? In today’s overly complex world of technology, lifestyle and finance, embracing the concept of simplicity is essential. It is too easy to get lost in the confusion and complexity of financial products, tax laws and media campaigns aimed at luring you into their clutches.
KISS—Keep It Simple Stupid—is a way of breaking through all that mess. The only requirement is to make the decision to stop, take a breath and consider five steps:
Know your values
- Assess your current situation
- Get help where you need it
- Focus on what’s important
- Check your progress
By starting with your values—what you really care about—you create the base to create financial happiness. Some of the most common values shared by clients include: attaining financial security, funding children’s education, not outliving their assets in retirement, living consumer debt-free. The values statement is the bedrock on which you can build your most satisfying life (more on this in a bit).
In assessing your current situation, you are basically holding up a mirror to your current reality. Are you on the road to financial security? Are you funding education? Is your retirement nest egg on track? Are credit card balances holding you back?
One of the biggest obstacles to assessing where you are right now is the understanding that you are probably not an expert in all matters financial. For example, you might have a portfolio of mutual funds that either you picked or your broker recommended. To assess how you’re doing you need to understand:
- Fund performance vs their benchmark
- Costs and tax efficiency
- Portfolio overlap and diversification, e.g. do you own Apple, Microsoft and Exxon in every fund?
This information is accessible, but do you have the ability and desire to understand and assess all this data? Wrap all this in with your real risk tolerance, overlay that with your actual portfolio and you might be ready to run screaming into the night.
Getting help is the most logical next step. Look for an objective planner that can help you translate your values to a simple roadmap, minimizing the extraneous side trips and traps. If you don’t know someone who is a Fee-Only Financial Planner, check out the NAPFA website. Regardless of whether you have a simple or complex financial life, that objective view from someone who adheres to the Fiduciary Standard (acting in your best interest legally) is your best shot.
Your planner, in exchange for a fee, will help you match your values with the steps necessary to work towards your vision of financial success. For example, your values will dictate the amounts and types of insurance you need. Your goals and risk tolerance will craft the type and composition of your portfolio. Did you know that market risk is just ONE of the many risks you must wrestle with on your path to your goals? Your estate plan, tax planning and return preparations should be left in the purview of those best qualified to help you deal with these issues.
To KISS, you have to focus on what’s important. Try thinking of yourself as the Chief Executive Officer of your family corporation. Your job is to delegate good people to do their jobs to make your vision a reality. But as the CEO, you can’t give orders and then leave on an extended vacation—you need to check, ask questions and assess results. If you are invested in a long-term portfolio, what is an appropriate time to assess success? Six weeks, six months, six years? (Hint, it’s certainly not six weeks or six months). Periodic reviews that reflect your portfolio’s benchmarks are essential to make sure your expectations are being met.
Check your progress and take action when needed. Meeting with your CPA and doing tax planning is very important, unless your situation is incredibly simple. Your CPA should be proactive and help you through the minefield of regulation and tax law. And, s/he should employ savvy tax strategy without allowing the tax tail to wag the dog—good economics always trump tax moves. Your estate plan should be changed whenever appropriate: a change in circumstances, tax law or residency. Just because you had your Will prepared in 1987 doesn’t mean it still works.
You can keep it simple if you begin, as Stephen Covey says, “with the end in mind.” Your values should dictate your strategy. Sometimes, it’s hard to resist the IPO, the complicated tax strategy or the hot product with all the bells and whistles that sounds like financial nirvana. Instead, hold firm to what you really want, adjust where appropriate and ask yourself whether any new tactic brings you closer to or further away from your goals.
There’s simply nothing better than that KISS!