Trim’s Two-Minute Guide to Handling Your Money

We at Trim think that your money is important, but that that you probably don’t want to worry about it all the time. Do the things below, and you’ll be on a relatively headache-less path to wealth.

  1. Open a Checking Account

Your checking account is your wallet, not your piggy bank. It exists to receive your paycheck and pay off your bills. We recommend Ally Financial Checking. It’s got a great website and a relatively high interest rate.

  1. Open a Savings Account

Your savings account is your short term piggy bank. It should have enough money for you to live off of for six months in case you lose your job. Again, Ally Financial is the way to go. Easy to use, and with a 1% APY, which is pretty good given how low interest rates are right now.

  1. Passively Invest

Forget beating the market. People on Wall Street try to do it, and generally they’re not very good at it. The Wall Street Journal reports that over the last ten years, between 71% and 93% of actively managed mutual funds have performed worse than the indices they compare their performance against.

Instead, make monthly contributions to the Vanguard Total Market Fund, the largest passively managed mutual fund in the world. It tracks the U.S. stock market, and has looked like this over the last ten years.

 

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And that’s mostly it. Of course, managing your money is more complicating that these three points, but if have a checking account, six months of money in your savings account, and regularly contribute to the Vanguard Total Market Fund, you’ll be in better shape than most Americans. Stay tuned for more details on passive investing and saving for retirement.

The Trim Manifesto

Look around you. Most folks have sub-optimal financial lives. Probably yours, too.

This doesn’t mean “not making enough money” or “not budgeting appropriately.” It means that some financial product that you use, and pay for — like car insurance or a credit card — could be cheaper and better. This is true for nearly everyone.

The important thing to realize is that financial products are commodities. Banks and other financial institutions spend zillions of dollars trying to convince you otherwise. Chase wants you to believe that their Sapphire card is better because it’s heavier. State Farm tries to convince you that their car insurance is superior because it’s sold by a human agent who lives down the street. Raymond James will explain until its investment advisors are blue in the face that their wealth management advisors are more talented than any others you could find. All of this is false. So why don’t we shop around more?

The history of financial institutions is local. If you wanted a bank account, you went to the nearest bank. Same for insurance and wealth management. But the internet is changing that. These services are now available online, and people can shop around instead of being restricted to physically available options. New start-ups can offer the same old financial products at lower prices.

These new online options leave us in a strange situation. 165 million drivers are paying more than they could for car insurance. 150 million people aren’t getting enough rewards from their credit cards. 50 million checking accounts are hit with overdraft fees every year. 40 million households pay too much on their credit card debt. And so on. Isn’t that insane?

Economically, it makes 100% rationale sense that all those folks should simply learn about the new, better, cheaper options and then switch to them. But obviously that’s not happening. Why? Many good reasons:

Lack of attention: Most people do their best to automatically ignore anything about finance, because it’s probably either an ad or a scam.

Lack of knowledge: If you don’t know there’s a better option, you’re not going to switch.

Lack of knowledge: If you don’t know there’s a better option, you’re not going to switch.

Lack of trust: The internet is full of Ponzi schemes and identity thieves.

Lack of knowledge: If you don’t know there’s a better option, you’re not going to switch.

First mover disadvantage: Even if a person can convince herself or himself to switch, we are designed as a species to do our best not to be the first to switch. Because what if? It’s always safer to be somewhere in the middle of the pack.

Lack of time: Let’s say you’ve read all the info and trust it immediately and want to get a better credit card ASAP – but you’re on the bus and your stop has almost arrived.

Forgetfulness: It’s always easier to put something off til tomorrow.

This problem is a hard one. But it’s definitely not the hardest. Compare what we’re asking for (maybe an hour, tops, to save a few thousand dollars per year) to a truly hard problem — like trying to reverse the obesity epidemic in America (behavioral, physical, and social changes every day for years). Optimizing someone’s financial life should be much easier. But we need to make it easier.

We’re here to help Americans optimize their financial lives, all at once, with a minimum of time and hassle. To get their attention; to educate them; to gain their trust; to show them that other people are doing it; to schedule the work at a convenient time; to make it clear that it’s worth their time to do this; and to make sure they don’t forget.