The Argument Against Complexity

I’m sure that most people have heard of the KISS principle, Keep It Simple, Stupid. It is a mantra that can help in many areas of your life. From a financial perspective, the KISS principle can help you to better manage and understand your financial well-being. Every household has the basic necessities: a checking account, savings account, and a retirement account. How many credit cards should you have? Probably a few less than you actually do. Make sure that you use the credit cards that you have and close out those that you don’t need.

Regarding your retirement account, how many retirement accounts do you have? Have you changed jobs and left a 401k behind? Have you retired and kept your 401k at your old firm? 401k’s are a great mechanism for building wealth because the employer matches a portion of your contribution. Once you stop contributing to your 401k, the high fee structure of the 401k starts to take a toll on your returns. If you have 401k’s lying around, it makes sense to combine them into a single Rollover IRA. The fees in a Rollover IRA will be lower and you will have better investment options.

Roth IRA’s are another account type that a lot of people have. It is tempting to have money working for you that you can withdraw tax free. The problem is that people don’t continue to invest in them over time. They tend to languish with a low balance and are forgotten. If you have one, you should manage it and continue to fund it. It is a great vehicle for tax free capital gains, but you need to keep contributing to it.

So the next time you are looking to open a new account or apply for another credit card, think twice. Keeping your financial instruments simple will make your life easier.