3 Strategies that can help simplify your life

In their new book, “Simple Rules: How to Survive in a Complex World,” authors Kathleen Eisenhardt and Donald Sull offer strategies to help people simplify complex decisions in their lives.

Much of the book, released in April, focuses on helping business leaders tackle inefficiencies in the workplace, but we sat down with Eisenhardt earlier this week to find out how everyday people can apply simple rules to one of life’s most complex areas of all: our personal finances.  

Simple rules work best for financial tasks or decisions we make repeatedly, like monthly budgeting and retirement saving, Eisenhardt says. You can spend hours trying to calculate your ideal “retirement number” or you can create one simple retirement rule: I am going to save 10% of my pay each month and have done with it.

We each have unique goals, strengths and weaknesses, especially when it comes to our finances. It’s important to be honest about your personal desires before trying to copy another person's’ strategy, Eisenhardt says. This is often why people fail miserably when trying to follow complex diets they’ve read about in celebrity magazines rather than consulting a physician or dietitian to find out what might work for their personal needs.

“The power of rules is that if there are a couple of rules, people will do them. If there are too many people just say 'ugh, it’s too complicated.' If there’s nothing, you’re always full of good intentions but nothing ever happens,” Eisenhardt says.

To come up with simple rules, Eisenhardt and Sull suggest using a 3-step process:

1. Develop YOUR specific objective and make sure it's not too vague (wrong: "save a lot of money" or "get better with money"). Instead, make it a specific goal like saving for a wedding, not spending your entire paycheck, or paying off a credit card.

2. Find your bottleneck to budgeting.  Once you’ve identified your goals, figure out what it is that's preventing you from achieving them (Eisenhardt and Sull call these these “bottlenecks”). A budget bottleneck might be the fact that you tend to run up balances on several credit cards or that you feel too overwhelmed and busy to spend time crunching numbers. Identifying the reasons you may have failed to budget in the past is an often overlooked, yet crucial, step in the process, Eisenhardt says.

3. Create rules to help overcome your bottleneck and track your behavior. Now that you know your bottlenecks, you have to find a way to get over them. A simple rule could be that you will only keep one credit card in your wallet at all times or only use it  for major purchases like airline tickets or car rentals. If you find that budgeting is too boring, make sure the rules include something you enjoy, like a reward (e.g., double latte or date night) when you finish, she says. Tracking your progress is important, too. 

If you sign up for Mint.com or some other budget tracking site and find you’re spending too much at restaurants, for example, you can create a simple rule about how often you dine out each week — maybe you only say yes to invitations to eat out with friends on the weekends and cook during the workweek. Financial planner Carl Richards (a.k.a. "The Napkin Guy") describes the simple rule he uses to prevent overspending while shopping online: the 72-hour test. He puts items in his online shopping cart but won't allow himself to buy them until 72 hours have passed. If, after 72 hours are up, he still wants to purchase whatever is in his cart, he will.

Simple rules shouldn't be applied to every situation, of course, particularly complex ones with many variables. Eisenhardt wouldn’t recommend trying to use simple rules to buy a home. There are way too many steps involved.

Where simple rules fail, checklists can often help. Checklists don’t necessarily make a complicated task any less so, but breaking them up into smaller, actionable steps can make you feel less overwhelmed. Talk to a pro who can help you come up with a checklist for a complicated financial task or decision, Eisenhardt recommend.

Source : http://finance.yahoo.com/news/simple-rules-managing-finances-174445572.html