In a world full of complicated choices and loud voices, it’s nearly impossible to shut off the noise of opinion, rhetoric, claims of superior returns or must-have products.
When it comes to finances, a mantra that comes to mind is “Keep it simple stupid.” As you may know, the KISS principle is not an insult, but a tech design rule. It’s so simple it doesn’t even require a comma.
I like the definition from Techopedia.com: “[KISS} states that systems perform best when they have simple designs rather than complex ones. KISS is not meant to imply stupidity. On the contrary, it is usually associated with intelligent systems that may be misconstrued as stupid because of their simplistic design.”
It’s also an acronym for “keep it short and simple” and “keep it simple and straightforward.”
And it applies 100 percent to your money life, which can and should be as simple as possible. When financial experts try to impress you with elaborate terms and complex investment products, remember that keeping it simple is actually the most intelligent strategy.
There are several moving parts to your finances that all move around one or two central themes. Here’s a simple way to look at it:
- Your Values
- Your Financial Realities
- Who and what is at risk
- Your SWOT. That’s an acronym for “Strengths, Weaknesses Opportunities, Threats.”
Begin with the central themes. Here, your values are the most important element. Everyone has things they care about and priorities. Think about the top three areas of importance in your life and why they reside in those lofty spots of “must happen.”
Once you have your “must happens” firmly established, consider your financial realities. While it might be awesome to own a big yacht, it might not be a realistic goal.
Reality may not be the rosiest scenario, but living in a fantasy is not going to help you live according to your values and address the areas that are most important. On the other hand, if you feel you must have a yachtsman experience, you might work a vacation share into your financial plan.
Then we get to the moving parts. What are the risks that could keep you from achieving your most important goals? Risk can be associated with what and who you protect, the decisions you make, and how you accumulate your wealth.
For example, you might need to protect your income with life and disability insurance. Or you might want to protect your wealth from significant volatility. You might want to protect your accumulation goals by keeping your fixed expenses and debt low. Ask yourself what decisions can impact your overarching goals.
Investing, of course, is an area where risk is a topline issue. One of the biggest problems can be summed up in yet another acronym: the FOMO mindset. That’s “Fear of Missing Out.”
We fear missing out on the hot stock, imagining that everyone else is getting rich while we sit on the sidelines. Our emotions can derail us in short order.
There is risk in everything, whether from inflation, stock market volatility, business downturns, or interest rate movements. If you’re going to KISS, take the time to understand the various risks and how they could impact your overall success.
If you’re going to keep your eye on the prize, you need to continually review your SWOT. Your self-awareness of what is going on around you is vital in making decisions that are sound and reasonable.
For example, know what you don’t know. Too many big mistakes are made because people think they understand investing and planning better than they do.
There is typically a gap between what we think and what is actual fact. That divergence can lead not only to mistakes but also to failure. If the areas in question are beyond your knowledge and experience, get help.
Financial calculators, blogs, articles and apps might be helpful, but they don’t necessarily tell you everything you need to know, especially when you’re factoring in your own unique values, realities, risks and SWOT.
In order to keep your financial life simple, know what you don’t know, and get help when it’s appropriate. Identify what you can control and what you can’t. The less time devoted to the uncontrollable and unnecessary distractions, the more time you have for the people and the lifestyle choices you love.