By: Jason D. Nickerson, CFP®, EA, President & Chief Operating Officer, John G. Ullman & Associates
We have all heard of the KISS acronym; “Keep It Simple Smarty Pants!” as Ted Lasso so eloquently put it. You see, the world only continues to grow more complex, and managing our personal finances is no exception; however, at the root, there are many basic foundations we can apply that stand the test of time. This is not to suggest that all things in our planning are simple, but if you remember some simple core concepts, you can do pretty well. We all have heard the Financial Talking Heads talk about things like “save more, spend less,” “create a budget,” “invest,” blah, blah, blah. They all seem to say the same thing. These might hit a little differently:
• Use debt as an asset, but smartly: If you have a good credit score, it may be in part because you have already done this. Do not be afraid to use debt as an asset. My favorite example is buying a home. You can certainly go overboard and make yourself house poor; however, before you make it your goal to pay off your house, ask why that is your goal. Using debt to finance your home allows you to leverage free cash flow and other assets for investments to hopefully, over time, outperform the interest you are paying the bank. Other financial professionals can be anti-debt. I say use it smartly; it is okay.
• Start saving early: We have all probably seen or heard this and have even seen it illustrated. If you start saving today for the next ten years and then stopped, you will have the same or more 30 years from now as if you started saving 10 years from now and saved the same amount for the next 20 years after that. Compound earnings are one of the most powerful financial forces in the universe.
• Invest with a purpose, and it is usually not to maximize returns: The investing world has only become more accessible to the everyday person. And it seems that we are all chasing the big win. I implore you to have a different approach. When you hear of everyone’s big wins, notice what you are not hearing about are their big losses. So please, invest with a purpose in mind. This means having a plan and your plan should not be maximizing returns. You should be investing for adequate returns to support the achievement of a goal. If you constantly aim for the highest return, you will likely take more risk than you should and likely end up with some big losses along the way, some that you may never be able to recover from.
• Save more than you think: I am telling you that you need to save more for your future than you think you do. This is pretty common advice, but people are living longer, and they want flexibility earlier in life. Saving earlier will allow for that flexibility.
• Live for today, plan for tomorrow: A mentor taught me this early in my career and it has stuck with me. We can get overly consumed with saving for a future that may never come. Make sure you enjoy today, while still adequately planning for tomorrow. It is all about balance.
Coming from someone who makes a living helping people in this area, it would seem I am writing myself out of a job. That is not the case. These are just some basics that everyone can use to get started and fall back on when things get more complex. When the moment is right, seek help from a qualified professional, but that doesn’t mean you still can’t…
Keep It Simple Smarty Pants!