Struggling to Manage Your Money? Stop Making It So Complicated


When I first started reporting, the best piece of advice I got from my editor was just four words long: Keep it simple, stupid.

I was a little offended until he explained that he wasn’t calling me stupid. He was referring to a rule reportedly coined by engineers decades ago. The so-called “KISS” principle states that most systems work best if they’re kept simple, rather than made complicated.

My editor was referring to reporting in a simple, straightforward way. But the same principle can apply to managing your money.

There’s a widespread perception out there that managing your finances well is a complicated endeavor. But it doesn’t have to be. It really comes down to a few simple guidelines.

Live on less than you earn.

Seems like a no-brainer, right? But it’s one that millions of Americans don’t follow. A Pew Charitable Trust survey last year found 55 percent of households broke even or spent more than they made each month. In the 2016 Consumer Financial Literacy Survey, more than one in three Americans surveyed admitted to carrying credit debt from month to month, with 14 percent rolling over $2,500 or more! With average annual credit card interest rates between 12 to 16 percent, that can be a costly habit. The simplest way to assure you spend less than you make? Pretend your income is 20 percent lower, and create a spending plan to match. Then automate deposits to your savings and investment accounts. (See below.)

Save money for expected and unexpected (but inevitable) expenses.

Even those who set aside money for upcoming vacations or other goals often neglect to save money for unexpected expenses—the so-called “emergency” fund. I’ve always disliked that term because it implies it’s a rare occurrence. Yet the fact is, you’re likely to get hit with several unexpected expenses in any given year. It doesn’t have to be a major car repair or an emergency room visit. It’s any unavoidable expense—from fixing a fridge on the fritz to treating a toothache to paying off a parking ticket.

When the Federal Reserve Board asked in its 2016 “economic well-being” survey how Americans would pay for a $400 emergency, nearly half said they’d either have to borrow money or sell something to come up with $400. Don’t be among them. How much should you save? Ideally, enough to cover three to six months’ worth of expenses in case you get pink-slipped. But, at the least, start with a few thousand—according to Pew researchers, $2,000 was the median cost of U.S. households’ most expensive unplanned expense in 2015.

Set aside 10 to 20 percent of every paycheck for your future.

Sounds hard, I know. But 1) that’s often what it takes to fund your post-work life, plus the house or other big purchases you’ll want to be able to afford before then, and 2) that’s the single biggest commonality I’ve found among those who achieve big financial goals (e.g. the $1 million milestone). There are two ways to get there: Spend less or earn more—or better yet, do both. New York-based Certified Financial Planner Stacy Francis suggests socking away most or all of every raise you get. She’s done this herself, and calls it “the best financial decision I made.”

Automate your good habits.

We all have good intentions, but a lot of temptations can get in the way of moving that money into your savings account. The simplest way to make sure you stick to your goals? Make it automatic. Not only does it make your life simpler since you can set it, forget it and know that you’re moving closer to your goals, but as Certified Financial Planner and author of “Mind Over Money” Brad Klontz told me, “When you automate, it takes more energy to change that than to just stick with it.” That extra effort alone is enough to keep most of us on track.