Financial Freedom – through Simplicity

July 1, 2008 by  
Filed under Money Space

This months theme is “Simplicity” and by happenstance this is one of the four key financial issues to keep in mind we spoke about last month.

One aspect of our financial affairs we must achieve is a clear understanding of the structures we use and how things fit together. I don’t know about you but I like to keep things clear and simple. Often I resort to pictures to help me explain and understand financial structures. Even simple things can appear much clearer when you use pictures. Perhaps you could ask your accountant or adviser to help you document a structure diagram of the entities and arrangements you currently have in place. It might also double as a chance to review things so you can identify what might need looking at. Remember what we said last month, “be prepared to regularly review your financial arrangements, because nothing stays the same”.

So, let’s start with a mental picture of what your bank accounts look like. Are they all over the place like a “mad woman’s hair do” ( I wonder if the Editor will let that one through?) or are they small in number and clearly identified as to what they exist to achieve?

Each bank account should have an identifiable purpose unless you use the one-bank-account-fits-all approach. There is nothing wrong with that as long as you are good at record keeping when it comes time to compiling your tax arrangements at year end. Over the years I have seen a number of approaches, but always the best are based upon simplicity and a clear understanding of what has happened during the year.

If you have a number of investments and possibly borrowings in amongst your financial arrangements perhaps you could use a facility such as the one offered by St George Bank which allows each customer to have one overall account which then has a number (up to 10) sub accounts. These sub accounts can then be managed over the internet and assigned to particular arrangements so you have all the transactions for each area in the one account.

Perhaps you already use internet banking because it is an efficient and simple means of managing your bank accounts. In addition, a number of the banks have packages that require an annual fee but incorporate reduced or no fees on those accounts (including sub accounts). So check it out – you may just find a simpler method than you have now.

The last word on simplicity for this month is, remember the”bus” principle. “What’s that?” you ask. Well it is the principle that asks will someone be able to fathom my financial arrangements if I am hit by a bus tomorrow? Perhaps you should ask your “significant other” (is that the correct term these days?) to review with you what is in place and check that both of you understand it. If you don’t, ask you adviser to help explain and document what is in place.

So until next month, keep it simple!

Comments

2 Responses to “Financial Freedom – through Simplicity”
  1. Chris Owen says:

    ooo Grant, you DO skate on thin ice! And any way what’s WRONG with my hair????

  2. angela says:

    Great advice, Grant. Thanks. I look forward to hearing lots more.