I used to be obsessed with optimizing.
- I opened new checking accounts if a bank offered a $50 sign-up bonus.
- I monitored gas stations near me to know where fuel was 5 cents cheaper.
- I once wasted an hour to save $3.60.
Stupid, stupid, stupid.
I started making real progress once I figured out two truths:
#1: I wasn’t “optimizing.” I was maximizing.
— and —
#2: Simplifying is more powerful than maximizing.
Don’t just take my word for it.
People who obsess over the best possible outcome are less happy — and more susceptible to ‘buyer’s remorse’ — than people who are satisfied with outcomes that are good enough, according to a series of studies led by psychologist Barry Schwartz.
“As a decision strategy, maximizing is an overwhelming task,” Schwartz says in his book The Paradox of Choice. “If you’re a maximizer, every option has the potential to snare you into an endless tangle of considerations.”
“Not only do maximizers overwhelm themselves … but once they’ve finally overcome the difficulty of choosing … they’re more likely than others to feel unsatisfied with it.”
Maximizing is counterproductive. The more we try, the more we self-inflict stress and overwhelm.
That’s particularly true in the high-stakes world of finance:
- “I can choose from 874 investment funds! I’m going to spend the next five months obsessing over these options!”
- “Yay real estate! I’ll wholesale. And flip. And invest in tax liens. Also buy-and-hold. Or maybe go into lease-purchases? And I’ll buy office parks. And mobile homes. And apartments. And single-family. And vacation condos. Oh, and I’ll invest in China. And Costa Rica. And Cleveland, Ohio. And … and … and ….“
- “If you stack this manufacturer’s coupon on top of a store coupon, plus use this app to scan your receipts, and enter your barcode into this rewards system, you can buy that jar of spaghetti sauce for a penny!”
Stop. This is insanity.
The more energy we devote to maximizing trivialities, the more we miss big-ticket opportunities.
Simplifying doesn’t mean that you should opt-out of the monetary system. It means that you:
- Decide what’s “good enough.”
- Focus there.
- Ignore the rest.
For example:
- Index funds are good enough. I’m not trying to beat the market; I’m satisfied with mirroring it.
- Rental properties are good enough. I’m not trying to become the next Forbes Billionaire; I’m satisfied with having enough money that employment is optional.
- Paying retail for a jar of spaghetti sauce is fine. I’ll fork over an extra few dollars so that I don’t need a spreadsheet every time I buy groceries.
This is based on one simple premise: Your brain’s bandwidth is expensive.
Imagine that your brain is an internet connection. (Mine is dial-up.)
You pay for every megabyte of data. And it’s expensive. You’re forking over some serious $$ per megabyte.
If you paid a monthly bill for your mental energy, you wouldn’t squander this bandwidth on time-wasters and minutia. You’d focus your energy only on the few things that matter most. You’d be deliberate about how you spend that bandwidth.
But here’s the thing:
Your brain’s bandwidth DOES cost money. But the cost isn’t charged in the form of a monthly statement. The cost comes from missed opportunities, drained energy, sloppiness and inattention elsewhere.
Time is money. Money is money. And your energy is money.
It’s the third corner of the triangle, or whatever silly visual analogy we want to give it (because who doesn’t love visual analogies?)
Mental bandwidth is more valuable than time. We have 24 hours in a day, but we have only 5 – 10 hours of sharp thinking before our brains dissolve into a puddly mess.
- That’s why every shred of productivity advice says that we should tackle our most important work first.
- That’s why we’re told never to make crucial decisions at night.
- That’s why clarity comes after a good night’s sleep.
When we’re tired, we zombie out in front of a TV screen, mindlessly surf online, or heck, just stare vacantly out the window while building paperclip chain at our desk. Why? Our minds need time to recover. We can’t spend too many hours “in the zone.”
We can only focus for a few hours a day. Spend those hours on the tasks that matter. The more time we waste on trivialities, the more we hold ourselves back.
Step #1: Just DON’T Do It.
You might be thinking:
“Sounds good in theory. How do I simplify?”
Simplifying comes from the things you DON’T do:
- Don’t open a bunch of bank accounts to get sign-up bonuses.
- Don’t waste time hunting for excessive coupons and deals.
- Don’t try to beat the market.
- Don’t jump from “hot tip” to “hot tip.”
- Don’t start a dozen money-making tactics and complete none. Commit to a niche.
I’m a real estate investor, but I focus exclusively on residential rental properties. I’d rather focus on one niche, become excellent at it, and move on with my life.
I make money online, but I’m not bouncing around on a tactical pogo-stick: “I’ll sell stuff on Amazon! Start an Etsy store! Design websites!” I focus on one tiny corner of the Internet — Afford Anything — and I ignore the rest. Am I missing the opportunity to flip domains and invest in Bitcoin? I guess. Do I care? No.
Step #2: Map Your Money
Next, it’s time to unravel any past complexity.
To find this, map your cash flow.
Most people have a handful of bank accounts (especially if you moved, got married, got caught up in an account-opening-bonus craze, etc.). You might have a handful of credit cards. And brokerage accounts. And if you’ve switched jobs, you might have multiple retirement accounts.
Which accounts feeds into what?
In a perfect world, your money map would look something like this:
But who is that perfect??
Mine looks more like this:
Just kidding. Almost.
I read about money mapping on WalletHacks a few months ago and promptly drew my own chart. It looks approximately like this:
Visualizing this cash flow (er, cash stuckness) is eye-opening. I realized I’ve unnecessarily complicated my finances.
See the redundancies? See all those unnecessary accounts? Stab them with a giant red “X.”
I’m still in the process of eliminating. But my hope is that I can get the chart to look like this:
Aaaannnddd … that’s it!
- Un-complicate your current systems.
- Say “no” to anything that’s not worth the effort.
Focus only on a few essential moves. Ignore the noise.
And then move forward with your one amazing life.
******
******
Hear Ye, Hear Ye!
A few exciting announcements, while I have your attention:
Ecuador
We’re back for Round Two!! Ding-ding!
Last year, I spent a week in Ecuador with fellow financial freedom bloggers Mr. Money Mustache (MMM), Jim Collins (JL Collins NH) and about two dozen awesome readers. We had a blast. This is the stuff that turns “community” from a trite buzzword into an authentic experience.
I’ll be chilling with the same awesome duo — MMM and JL Collins — and we’re looking for a couple dozen friends to join us. We’ll be at a gorgeous spot in Los Bancos, Ecuador this November 12 – 19.
If you’d like to sit in a tepid hot tub, eat your body weight in chocolate, and occasionally chat about money, sign up here.
By the way, this isn’t a money-maker for us. We do it for the sake of hanging out with readers, attempting backbends on the equator, and — hmm — well, we’ll either exchange ideas about financial independence, or we’ll play Cards Against Humanity. Maybe both.
Last year the event sold out within days, so if you’re interested, sign up now.
Podcast
Remember approximately 11,247 years ago, when I said I’ll be launching a podcast?
We’re finally (!!) ready to launch. YAY! We’re so good at life!! We’re going live on Monday, February 1st.
It’s called — wait for it, wait for it — The MONEY Show. (I’m serious when I say that it took us months to come up with the name.)
The show covers financial independence, entrepreneurship, investing, money management, real estate, and all things awesome. We include interviews with some incredible people, including:
- A guy who reached financial independence in his early 30’s
- A couple who make big money through eBay and Airbnb
- A dude who DJ’ed his way out of debt
If you want updates about new episodes, sign up here. This is a special email list just for people who want updates about the podcast.
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Cool post. Funny, I drew my accounts just the other day, each account has a different purpose and very very simple! I agree, keep it simple, it gets harder to track the more incomes/side hustles you have and the more accounts open.
I’ve learnt over the years the same rules: Just build each income with a purpose .
By the way: I signed up for your podcast, I can’t wait!
I was pretty ruthless when I cut my accounts. If there was any overlap, I figured out a way to make it work because I wanted that map as clean as possible. Some things you can’t remove but you can remove more than you think. 🙂
Very interesting article Paula. Thanks fore referring to Jim’s article as well ( also very interesting)
I have actually taken the opposite route with brokerage accounts, and have more brokerage accounts than the average individual.
Since I ask myself what could go wrong, I have decided to have some redundancy in that area. I call this process stress testing my dividend portfolio.
The goal is to have my money protected by SIPC insurance ( plus different accounts serve different purpose – 401K for employer at one place, SEP for solo stuff, Roth at another place, taxable at a few other institutions).
I do not want to be in a situation where I am living off my dividends, and a major brokerage at which I have most of my assets collapses and freezes access to my money. I do not want to find out how this will affect me.
I also do not want to find out what happens when my broker fails, and I have more than $500K in it.
For almost everyone else however, I agree that having too many accounts is confusing and results in people getting lost in details.
Great point! SIPC protects up to $500,000. If you have more than $500,000 at a brokerage, then there’s a good reason to open a second account.
Similarly, the FDIC insures up to $250,000, so if you have more than that amount in a bank account, it’s good to open a second account (assuming you have a compelling reason to be holding that much cash.)
Thanks for responding Paula. You have a lot of very informative posts on your site, which I am slowly binging through.
The FDIC limit for cash applies for brokerage accounts too. In a theoretical 500K portfolio, someone with a conservative 50% allocation to fixed income might choose to build a CD ladder, which would be protected by FDIC. Those FDIC dollars apply for cash and equivalents such as CD’s.
Good luck in your investment journey!
DGI
I’m interested in your MONEY podcasts, but…
How long will each be (I don’t have all the time in the world – even though I’m retired.
Do I have to watch them live, or do you record them so that I can watch whenever
@Bob — The podcasts are audio-only, so you can play them in the background while you’re doing other things (cleaning, mowing the lawn, cooking, driving, whatever). They’re pre-recorded, so you can download them anytime. Each episode is roughly 45 minutes, though some are as long as 1 hour. Thanks!
“Don’t start a dozen money-making tactics and complete none. Commit to a niche.” – I will stick to this one until the end of this year. Thank you
This post has finally motivated me to move that silly $50 from a brokerage account a few years back into something that will make more than .08 a year. 😉
Thanks!
Haha! I KNOW the feeling! 🙂
I nearly got suckered into opening a new bank account too!
Then I realized it’s a hassle trying to go to the bank, putting in the money (and not earning much interest), and then a few months later going back to the bank to close the account.
That bonus they give out is subject to taxes too so in the end you really don’t get much!
So I went on this same trek many years ago (thanks for the plug about the map!) and let me tell you, simplifying is far far far better than optimizing (for $). It’s like when you keep that item you think you’ll use sometime in the future even though you haven’t touched it in years. Decluttering, simplying – so so liberating and it gives you so much energy and attention for the things that need it.
Speaking of which… I need to update my map! (can’t wait for the podcast!)
I wish I could join you again in Ecuador this year! There’s just something about fighting weed whackers that really made the trip for me last time…. at least we’ll get to hang out for a bit in Seattle!
Also the whole simplify thing is good too. I am exceptionally good at making my life far more difficult than it actually has to be.
This is my first issue of Afford Annything. I loved it! Love your tone, your energy and your advice. I can tell yours is an email I will open and read. Thanks!
Thanks Kris! 🙂
LOVE this article and it could not have been more timely. I am currently actively working on exiting my career position and entering full time entrepreneurship in the next 50 days. The one thing I have noticed as I have started to watch my budget very closely, was the amount of time and even extra cost chasing after the cheaper deal. For example, I decided to pull out the carpet in my rental to save $250. Well after spending $70 for the dumpster, the neighbors dumping all of their garbage in my dumpster and mix ups with the city for dumping it, it was all for nothing. The tenant who has a dog would have happily taken the house with current carpet saving me $1500 and HOURS of aggravation.
As always love your article!
Great advice! I find January particularly overwhelming with a million articles suggesting a bazillion ideas about how to improve your life and productivity. But ultimately these leave me too overwhelmed to do anything! I completely agree that focusing one your niche rather than wasting time spreadsheeting grocery shopping is way more effective & leaves mental energy available for bigger purposes. I’m also super excited for the M.O.N.E.Y. podcast!
Yes! I’ll never understand why people think something is ‘free’ if they do it themselves. In most cases, I’d say time is worth *more* than money. Figure out what the value of your time is, and then it becomes easy to decide whether something is worth doing (and even if it’s worth doing, you might be better off paying someone else to do it for you.)
Good article. My wife and I just went through the whole simplification process with the items in our house. I made three trips to Goodwill with all the stuff we gave away! From a financial standpoint, I’m fairly simplified already, although I have recently gotten a bit more complicated – but on purpose. We’ve budgeted savings for several goals. I used to keep all those funds in one big pot, but it was too easy to cheat and steal funds from one budgeted goal for another. So I’ve opted to open multiple savings / checking accounts (but at the same institution) so that each goal has it’s own money pot. No more cheating! In this case, a tiny bit of complication helps.
That’s a great approach, Shaun. Targeted sub-savings accounts (in one institution) makes it easy to “visualize” your savings for specific goals. Instead of seeing one gigantic pot of money and thinking, “whoa, I’ve got money to burn,” you see small pots of money that’s marked for specific purposes — “emergency,” “holidays,” “car repairs,” etc. Nice one! 🙂
(And I have a trip to Goodwill coming up! I have a HUGE bag of stuff to give them!)
My husband and I implemented the YNAB program and it has HUGELY helped our budgeting for different savings and normal expenses. So simple but so effective. All of our categories are clearly seen with how much we have budgeted for each category so no need for multiple accounts. Visually it is like having seperate accounts without the hassle of actual multiple bank accounts. Your income source is inputted into the budget and then you simply dispurse the money as you dictate. When a bill is due, simply pay it out of the pot( one bank account), but the expense is clearly taken out of the right portion of the pot and not a penny more. The budget tells me EXACTLY where I stand. Has an app for the phone so you can see your budget no matter where in the world you are.
You Need A Budget- YNAB
Amazing and in-depth post! So true and something I am for sure guilty of at times. There’s no such thing as too many reminders to focus on what’s important.
AND, can’t wait for the podcast! Congrats!
Love this post. I did the same things like jump from bank account to bank account chasing rates and bonuses. I admit I still do it from time to time, but my threshold is much higher (just got a $300 bonus for switching to BoA for doing normal banking stuff). I value my time much more now than I used to, so as they say, the juice has got to be worth the squeeze.
I do secretly crave super simplicity (one bank account, one credit card, one broker etc.), but there is money to be made if you’re strategic and systematic with seeking out new opportunities. I think once I have enough money that employment is an option, then maybe I’ll scale down my life.
This post was a great reminder. We only have a limited amount of time each day to be productive so let’s not waste it on things that aren’t so valuable.
“Is the juice worth the squeeze?” — Best. Line. Ever!!
Simplicity with bank and investment accounts also helps me keep track of the “big picture”. I also have all my recurring bills (phone, utilities, health insurance, cable/internet, etc) set to automatically be charged to my credit card each month with the dual purpose of simplifying bill paying as well as earning credit card rewards. My house has been paid off for years so there’s no mortgage. Also, if something were to happen to me (accident, sudden illness) my daughter could easily step in and take care of things. She knows where I keep my account usernames and passwords. Simplicity creates peace of mind, reduces stress, and frees up time. However, I still review all of my bills and credit card statements on line each month. It doesn’t take much time and doing so ensures they don’t start creeping up.
Great Post! I’ve been thinking this recently with credit cards. I signed up for a few different ones to play the rewards points game a bit. I obviously pay them off every month, but it’s left me with more credit cards than I need and the complexity of the extra accounts. Some of those might need to go!
Have you ever read anything by Scott Adams, the creator of Dilbert? Simplicity>Optimizing is a big topic he talks about, as is Systems>Goals.
Couldn’t agree more — a couple examples:
*I used to have 10 credit cards, now I have three.
* I used to invest in a ton of funds with many different companies, now I invest in a few only with Vanguard.
Why? It basically comes down to time and energy. Who wants to manage 10 credit cards to get an extra $50 a year. Not me.
We’ve also simplified in other areas. We’ve moved twice recently and have given away TONS of stuff each time (even after we moved the first time, we had lots of giveaways for the second move.)
We also go through our closets each spring and fall and giveaway items we haven’t worn in a year. Every so often we miss having an item, but that’s by far the exception and not the rule.
When our kids were young they liked a certain cartoon series that taught moral stories. One of the catch phrases from one of the stories was “The more you have the more you have to have to take care of the things you have!” So true!!!
Jungle Jam! Our family’s favorite. We are always quoting that awesome radio show. Or singing one of the songs! O, la, la!
The only fun missing from Ecuador is wine. Tepid hot tubs and eating your body weight in chocolate requires wine. Just saying 🙂
I love that you quoted from The Paradox of Choice! I am reading it currently and much to my chagrin, I am a maximizer. I have weird quirks like weighing the retail cost of an item with what the materials actually cost, or with thinking I will find that AMAZING once-in-a-lifetime deal if I would just spend my entire Saturday visiting 8 stores or attempting to DIY all of my home decor (like this past weekend where I did not score any great deals, did not get any projects done, and feel less satisfied with anything I purchased than if I would have spent the retail amount, and used up my entire Saturday in the process). Thank you for this article! I am going to simplify – in order to maximize my TIME.
Great article, it’s nice getting a “brain” perspective check occasionally. There are definitely times that done is better than perfect, and I realized a long time ago that by going somewhere to save even $0.10/gallon on gas, I was ultimately saving myself about $1.50. While that amount can add up, I don’t refill often enough to ever get any real savings from it. Also, when I realized that less than that amount, like say saving a nickel or less, the amount saved is laughable. It’s funny how things change over time.
I love the flow charts and ill have to map my own money pathways and do the same exercise at work and home with my time and see where I waste the most of it. At least then I can be aware. Like with tracking spending I was finally able to see how much leakage I had each month, and now I can do the same with time. Brilliant!!
Focus indeed.
There’s a near-infinite number of opportunities I’m missing *right now*. Only a very small finite slice of them will definitely help me fulfill my aims, that I can understand and feel proud getting into. Why bother with any of the rest?
You make simplifying sound so good, your’e absolutely right optimization may have its pros but it takes up so much time and causes so much stress! Very excited for the podcast!
Done is better than perfect. I am really getting to where this ok with me. I am a perfectionist in recovery. It’s a lot easier to embrace this done>perfect attitude now that I have kids to focus on too. 🙂
Completely agree on focus. Life and taxes are so much easier with one main bank even if it’s evil BOA.
Stretching yourself unprofitably is a tough balance. How did you determine to start a real estate class?
I ask bc I think diversification (within reason) between investments mitigates risk, increases opportunities and increases skills. Especially when younger bc you can use knowledge longer. But it’s a balancing act. Before I commit to the next endeavor I try and estimate if it’s really that much better than what I’m doing now. That upfront analysis has saved me from storage facilities, flipping, condoizing, AirBnB, HomeUnion, bit coin, metals, tax liens, etc. Yes, studying takes my attention away from my core investments but this approach has found me extraordinary opportunities. For instance, I’m writing you from Marco Island while on an 8 week paid paternity leave 🙂
Ms. Afford Anything,
This article resonated super well with me! I’m a big proponent of protecting one’s head-space above (almost) all else.
I’m currently working through a debate with myself as to when I should move on to rental property #2. From a purely financial perspective, I should absolutely make the minimum mortgage payments and start saving for house 2 — of course I can get a better return than 4% (interest rate on mortgage 1). That said, the 4% is guaranteed and there’s value in the peace of mind that I’ll have when I own house 1 outright.
I recognize this is a personal decision based on my lifestyle and goals. Just thought I’d let you know the thought-flow that you prompted. 🙂
Keep putting out AWESOME content!
Thank you Markie!
Here’s an article I wrote about repaying mortgages vs. investing. It’s geared towards owner-occupants, but the lessons definitely apply to rental property investors, as well.
I hope it helps!
(By the way, here’s my personal decision: I stockpile cash in a savings account until I could wipe out a mortgage with one big check. At that point, I look around at the market and see what’s available. If there’s a great investment, I’ll buy it. If not, I’ll wipe out a mortgage. This is how I bought House #5.)
I was thinking, “I’ve got satisficing nailed” but then I looked at your money map and was like… ok, I have fidelity and american century and schwab and etrade (which also used to be brown and co) and vanguard and voya and… (seriously, there’s more!)
I think I’m still ok though because I just completely ignore all of them except at tax time and then DH deals with the 1099s. For a while we were trying to simplify but it’s such a nightmare trying to deal with basis points and voya not wanting to hand control over to fidelity and so on that I’ve just given up.
Sounds like NOT consolidating is the simpler choice in your situation! Haha — go figure!! At least you know it! 🙂
Really enjoying your podcast so far…and I didn’t even get to the spot where you say the audio gets better yet 🙂 it’s fun putting a voice to your blogs!
Thanks Mrs. Paradise! I’m happy to hear that you like it (and that you think the initial audio isn’t too bad — I was worried about that!) 🙂
I love your analogy on brain bandwidth, that’s a perfect example why simplification is the smarter choice. We only have set amount of time each day and set amount of mental bandwidth. Wasting them on silly things makes no sense.
Keeping things simple not only reduces stress and makes your life easier, but it also makes you much more productive and efficient.
I remember when I was younger, in my teens and early twenties, back then I always just went with the flow of things and would never over think something. And everything would fall into place and work out.
In my last year or so of college and following after graduation up to now, for some reason I started over complicating and over analyzing everything. This not only dulled and added stress to my life, but I also became less productive and it takes me longer to complete minor tasks because I over analyze them.
It’s truly not worth all the additional energy and effort it takes to over optimize a situation for the minor amount of extra value it adds. Like you said, you really don’t get any additional satisfaction from the additional effort anyways.
You make some great points! We can absolutely drive ourselves crazy trying to be “optimal” and forget that we’re trying to make our money work for US. We need to find that tricky balance between doing the best we can financially and living a life that’s rich in other areas. Thanks for sharing these thoughts!
Yes to this! Love the points you make. Constantly trying to remember to say “NO!” to things that aren’t worth the effort and energy.
Awesome post! I just completed a huge life simplification project after my divorce – our finances were ridiculously complex given the relatively small amount of money involved. I’ve downsized and am living this year without a permanent address to free up time and money to create at least 2 passive income businesses. Ally Bank and Betterment have been a godsend for flexibility. One of my passive income startups (meaning, all work and no revenue right now yikes) is a blog/hub connecting and inspiring amazing midlife women transforming their lives. Simplifying is a BIG topic for us, by the time we get to midlife our lives are usually the opposite of simplified and its hard to find our way back to sanity and ourselves. Add onto that the fact that often we have decades of shared financial stuff with a partner…it can be messy. So thank you Paula for your super smart and funny posts. I appreciate you and am following with interest.
Hey Paula,
I have been listening to you on Stacking Benjamins for a while now and am really enjoying your new podcast with J. Money. For some reason, today is the first time I have made it over to your blog.
This article reminded me of the concept of Zero Based Thinking, meaning – knowing what I know now, would I continue to do this thing? More and more, my answer is becoming “no” as I try to simplify.
Our approach is to earn from our jobs, save more than 50% of our earnings, and invest in mostly index funds. I do, however, spend a great deal of time reading about other investing options. It seems like I am always researching different side gigs or ways to reduce our budget. You now have me thinking that all of that time is just a waste and I should just focuse on our current approach without stressing over finding ways to optimize it even more.