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Carla Fried: Sometimes, in personal finance, simple actually works

Carla Fried, Rate.com on

Published in Home and Consumer News

When it comes to making financially smart decisions, saving and investing experts are typically quick to tell us that only rubes rely on rules of thumb.

Finance pros are often dismissive of anything but a refined approach that is focused on delivering optimal outcomes. (Which, not coincidentally, plays into their career advancement/compensation.)

And yet that attitude creates its own risk: that we all become so cowed or overwhelmed by all the details of advanced theories and strategies that we end up letting the pursuit of the perfect be the enemy of the good: We freeze up and do nothing.

Thumbs up for rules of thumb

But as a recent report from Morningstar lays out, academic research has found that sometimes, simple financial rules of thumb can, in certain situations, work out just fine.

Morningstar itself set out to take a dive into researching what sort of financial rules of thumb are popular and, more importantly, which ones might be effective.

 

Popular financial rules of thumb

Nearly 900 study participants were presented with a series of financial rules across four broad categories and asked which ones they used the most.

—Debt management: Both “pay more than the minimum payment” and “always pay debt in full when possible” were used by 67% of participants.

—Spending: 72% used “don’t spend more than you make,” followed closely by “make list for shopping” at 71%.

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