When it comes to managing your household finances, you may feel like you have to do everything you can to get the most benefits from your credit cards, pay the least amount of taxes, get the best returns on your investments, and get the most interest on your savings.
When you feel this kind of pressure, it’s best to be honest and overcome it, says Christine Benz, director of personal finance and retirement at Morningstar and author of How to Retire.
“There’s an optimization mindset in the (financial) industry,” she told CNBC Make It. “If you’re just learning and getting up to speed, you start to think that’s probably the only way to do this and if you cut corners you’re doing it wrong.”
Don’t get me wrong, if you like digging into the details of your finances and have the time, that’s fine, Benz says. But for the rest of us, she says, taking a simplified approach can free up time and energy to work on other things while staying on track to achieve your financial goals.
In a recent Morningstar article, Benz calls this a “good enough” approach to financial management. While these may not be moves to “maximize” your finances, consider these four strategies. These strategies can achieve similar results “with far less time and effort,” she says.
Reverse budgeting
Many major financial goals, such as saving for retirement or paying down debt, rely on being able to save a portion of your income on an ongoing basis, Benz said.
“If you’re reasonably frugal, you don’t have to do a lot of other things,” she says. “Even if you make substandard decisions regarding your investment choices, if your savings rate is decent, for example, you can address a lot of things that might not be perfect in your plan.”
Simply put, investing 20% of your income consistently in a below-average portfolio is more likely to yield better results than investing 5% and getting an above-average return.
If you want to keep things really simple, try a strategy used by Mercedes-Benz known as reverse budgeting. Rather than trying to adjust your spending to optimize your savings rate, choose a certain percentage of your income (Benz says 15% is a good goal) and set it to automatically take that money out of each paycheck and put it towards your financial goals. Spend the rest of the money however you like.
index investment
In theory, if you choose the right investments at the right time, you can beat the stock market in the long run. However, when you actually try it, it is really difficult. Consider a major U.S. stock fund manager whose mission is to outperform the S&P 500 over a 10-year period ending in June 2025, according to Morningstar. Only 8% of mutual funds survive and outperform their benchmarks.
That’s why Benz recommends building a core portfolio of index funds. Index funds have low fees and simply track the performance of a market index rather than trying to beat it.
“A lot of the data points to the fact that index funds are a really great option and you don’t have to mess with them,” she says. “One holding can give you exposure to different parts of the stock and bond markets.”
“For me, index funds are a nice intersection between optimization and a ‘good enough’ portfolio.”
Simplify financial relationships
No one wants to park their cash in an account that earns virtually no interest. But there’s no need to move money around for tens of percentage points, Benz said.
“The idea of people running around trying to get the best cash product drives me nuts,” she says. “The best way to get things in your favor is to go with a low-cost provider that offers sustained competitive yields.”
In the context of securities trading, that might mean comparing what you can get with a so-called “sweep account,” where money sits inside a brokerage account when it’s not invested, she says.
For high-yield savings accounts, it’s good to remember that interest rates can fluctuate, Benz says. It’s probably less of a headache to stick with your favorite bank that pays a generous interest rate than to bounce around from one online bank to another that offers the highest interest rate of the year.
And if the bank or brokerage offers a credit card with perks of your choice, even better, she says. When you or someone else actually handles money, having more money under the same roof tends to make things more manageable.
“Reducing the number of financial relationships is a very good habit. That doesn’t mean you want to be completely lazy,” she says. “But if we can reduce the number of entities that need to be connected, that’s all good.”
Use an advisor
Benz thinks and writes about finance for a living. She published a book about retirement. Still, when it comes to managing money and planning for their retirement, Benz and her husband seek the help of a financial planner.
By doing so, Benz can create an optimized financial plan. She just has others help her with all the fine-tuning.
“She’s coordinating everything, and that gives us a lot of peace of mind knowing that someone else is optimizing it and also using very powerful tools to do it,” Benz says.
It’s not like Benz or you or anyone else couldn’t figure this out on their own. But by offloading some of the tedious tasks, you can free up your time and energy to focus on what you really want to spend your time and energy on. Benz favors fee-only planners that charge hourly rates, charge for specific services, or charge fees similar to monthly or annual subscription fees. Importantly, Benz said, they are not paid to sell certain financial products, which could be a conflict of interest.
For Benz, working with professionals was worth the cost.
“I kind of thought, ‘Oh, I should do this myself,'” she says. “But in the end, I realized that, importantly, it was important to rely on people who had the tools to come up with really good answers…which I didn’t necessarily have, so I decided that was a good value proposition.”
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