I had an interesting conversation with a friend recently over a lunch gathering during the weekend. It was about all the effort required to manage the multiple high interest bank accounts and associated cash rebate credit cards. Whether it was worth the time monitoring the bank account balances and credit card spending to ensure we maximise the interest earned and cash rebates received.
She gave a good argument on how you should be spending that time and effort more efficiently e.g. trading to earn higher investment income, deriving side hustle income, etc. A case of not seeing the forest for the trees. Which makes sense when you think about the situation she is in. Both her husband and her work while their kids are still young and it takes up so much of their time bringing them up well. This leaves them with a limited attention span to focus on what’s important financially.
And it’s not these high interest bank accounts and cash rebate credit cards that have limited upside since there’s a cap on how much you can earn from them. Let’s not forget she is a decent trader with a track record of earning investment income consistently and has good business ideas that she plans to execute on soon. So their approach is to have 2 banks account and 2 credit cards in total between the husband and her, easy to monitor and manage. As a comparison, we have 10 bank accounts and 10 credit cards in total between my wife and I.
I must admit that I have never thought about the opportunity cost of managing so many bank accounts and credit cards. It just didn’t occur to me that simplification could be a possible way to approach this. However, our personal circumstances are different since we have no kids, no trading ability to generate investment income and no business ideas to execute on. By now, the process of monitoring the bank account balances and credit card spending has become so natural that we just execute the actions without thinking. This is taking into account the initial time and effort needed to set up the entire personal banking system.
That was the argument I floated across to her. In terms of time and effort, the initial setup costs are high but the ongoing maintenance costs are low. Doesn’t she want to optimise her idle spending, emergency and investment cash funds? Another good answer from her. She doesn’t keep excessive spending, emergency and investment cash funds like us since they are usually deployed in the markets for higher returns. She only holds sufficient levels as insurance against job loss but doesn’t see the need to hold beyond that since both of them are still working and drawing high salary income. My wife and I always have a tendency to keep large cash balances in bank accounts. Call it peace of mind, sense of security. But it makes us feel safe. Though it’s not efficient from an investing perspective.
I enjoyed having that conversation very much. It’s not often I get to debate on various financial approaches. The point is not about who’s right and wrong. Everyone has a different strategy. Yes, over time, some may prove more effective than others. But it’s more important to find out what works for you personally. I probably should start attending more talks and seminars to meet like-minded people. The good thing for my wife and I is that we have a close circle of friends that are older than us with kids and more life experience. We are the youngest in that group and continue to learn as much as possible from them.