Aim for Simple, not Simplistic.

Simple v. Simplistic

At Think Independent we aim to make clients financial affairs simple.  What do we mean?

Importantly, we don’t mean simplistic.  We are not looking to achieve simplicity for the sake of simplicity.  Rather we are looking for simplicity within the framework of our client’s goals and the available options.

If we use a couple, John and Jan, who are saving for life beyond paid work as an example.  Probably the simplest option is to direct all available capital and savings to a single bank account.  What could be easier and simpler?  Not much, but will pursuing this option actually achieve the desired outcome.  Possibly, but probably not.

Understanding your Goals and the Issues

Client goals are the first matter to consider.  What are John and Jan actually looking to achieve?  How much income do they need? Do they want to gift money to family?  If John and Jan can’t achieve their goals there is something wrong with the strategy.  Returning to our single bank account idea, it’s likely to be too simple.  It’s simplistic.  Of course, John and Jan’s goals could be unrealistic, but we’ll assume they aren’t for now.

Once you consider and have an understanding of surrounding issues, such as the impact of inflation and taxation on John and Jan’s capital and income, you could find the single bank account strategy wanting.  Maybe the solution is to move to using term deposits as well, so you can generate more income.  Maybe you need to go further in pursuit of greater returns.  It could be property.  It could be shares in companies.

You might need to look at the tax structures used.  Maybe the superannuation structure will reduce taxation and increase their after-tax income.

As you can see, as soon as we move away from the simplistic option of a single bank account we have introduced complexity.  You could argue that by doing this John and Jan’s financial affairs are no longer simple.  We’d argue that unless John and Jan can achieve all their goals under the strategy of using a single bank account, the strategy isn’t simple, it’s simplistic.

Einstein has been quoted as saying “Everything should be made as simple as possible, but not simpler.”  The single bank account strategy is likely to be simpler, not simple.

Simplicity after Understanding

When assisting clients with their financial life we are aiming for the least amount of complexity while still achieving the client’s goals.  The outcome is a strategy that is as simple as it can be, given the goals to be achieved and the available options.

Take a look at your existing arrangements with a critical eye and ask if they are simple or simplistic.  If they are simplistic, aim for simple.

Disclaimer

This advice is of a general nature only and may not be relevant to your particular circumstances.  The circumstances of each person are different and you should seek advice from a financial planner who can consider if any strategies or products mentioned are right for you.