Cheap, Simple, and Easy
Cheap, Simple, and Easy
I think it is easy to confuse the trees from the financial forest. In my opinion, financial plans should have roughly four legs. The table should be propped up with W2 wages, broadly indexed stocks, real estate, and side hustles. That’s it. There really don’t need to be further layers of complexity (I guess you could also add in the appropriate insurance). Yet time and again, the majority feel that financial independence is built on some magical formula that is difficult to comprehend and duplicate. Although hard to achieve, in reality financial independence is simple. Better yet: cheap, simple and easy.
These three guiding principles often dictate the majority of my financial moves. If a new plan or investment doesn’t meet this litmus test, it is very likely to be discarded.
Cheap
I’m not referring to the derogatory term here. The better idiom is valuism. I look to find good values and buy at a discount. This could be in the form of flexing my frugal muscles and buying used. Or we could be talking about investment property and hunting foreclosures. And, of course, the stock market is no exception. I especially like to buy when the market is down.
Not only purchases, but also with the business asset class. I started my concierge medical practice with less than a thousand dollars. I am a big fan of lean start-up principles and often start lean side hustles.
Unlike the common saying, I try not to spend money to make money. I would rather leverage human capital to produce my perpetual money-making machines. The problem with capital intensive projects is that they consume the capital that could otherwise be compounding in the stock market.
Cheap, simple, and easy. You work for your money and let your money work for you.
Simple
I never invest in financial instruments I don’t understand. I never start businesses or become a partner in models that don’t make sense. If I, with my medical degree, can’t immediately see the purpose and the benefit of a financial endeavor, then it is not right for me.
I don’t care about explosive returns. I don’t care about taking advantage of inefficiencies. If I can’t quickly discern where exactly I am putting my money or time, I run away as fast as I can.
Simple is the new complex. If you keep things cheap, simple, and easy you are bound to eventually succeed.
Easy
Money is an intermediary. We exchange goods and services that we produce for goods and services that we need. Life is too short to get caught up in difficulties. Too short to get caught up in complications. I am not saying don’t ever do anything that is difficult. I am saying don’t make everything difficult.
Becoming a doctor was difficult but worthwhile. Making money as a doctor should be easy. Leverage medical skills and turn them into revenue streams. Take advantage of the main hustle in the form of a medical practice and then develop a few lazy side hustles to uncorrelate income.
Real estate is no different. If you find the perfect property at the perfect price but it needs extensive renovation, or it is in a bad area that will be hard to find renters… run away.
Or if you find the perfect business but in order to afford the minimum investment you need to over leverage your house…run away.
If it isn’t cheap, simple, and easy…run away.
Final Thoughts
Life can be complex. Relationships are difficult. Don’t expect the same for your finances. Cheap, simple, and easy.
It is the financial mantra that I live by.
How about you?
I stay with a three legged stool instead of four. I have no interest in the hassle involved in real estate. Our area is shrinking in population and is low income which does not favor real estate growth. Plus there are a number of wealthy real estate barons and slumlords here that screen every property sale. I don’t like my chances of competing with them and having remote ownership of rentals somewhere else sounds like a recipe for disaster. I have a small amount of REIT exposure and that is enough for me.
I think REITs qualify. Still somewhat correlated to the market.
Love your mantra! Makes good no nonsense sense. And avoids the seduction of get rich quick illusions.
Yep. No get rich quick here!
I really like the way you look at the big picture. Now that we are retired, we have more and more desire for simplicity. Oddly, even as we have more money than we will probably need, we find that cheap things are most appealing. For instance, we rarely go for a fancy dining experience, but we recently celebrated my Mom’s 85th birthday in a very nice restaurant on the water. It was funny to try to help my Mom pick something off the complex menu. So complicated were the entrees that she didn’t recognize some of the items. As my friend’s son likes to say, “I prefer my meals on a bun”.
Yep. Complex doesn’t mean better.
I’m stocks, bonds, alternatives, gold, REIT and I play the lotto twice a week. 6 legs?
Gold? Really? You could cash that out and buy more lotto tickets.
The correlation between SPY and GLD is 0.05, Between SPY and VBMFX (bonds) is -0.01 and between VBMFX and GLD is 0.39. It adds diversity and portfolio stability especially in a crash. Got to Yahoo and get a quote on SPY and expand the chart. Then overlay with GLD with the comparison feature and look at what GLD did compared to SPY peri 2008. Let me know when you add a little GLD to your portfolio. What good is having 4 legs if Mr Market can saw one off? When Mr Market saws off stocks GLD grows a new one to take up the slack. You own many stocks to reduce risk even though many of them are underwater and a huge drag on your return. Consider the advantage of owning many non correlated assets to diversify your risk. Real estate any one?
I only have three legs and there’s a joke in there somewhere….
Ha! Apparently three is enough.