Does your financial life feel cluttered, stressful, and out of control at times?
Do you feel overwhelmed with the constant bombardment of information regarding your financial life?
Have you searched for a better, simpler way to go about managing your finances to no avail?
Well, search no more!
There is a simple, three step solution to the question of how to simplify your finances.
With the help of technology, a little forethought, and some common sense, you can enjoy the calm, cool waters of a simplified financial life sooner than you ever thought possible.
Let’s get started!
1. Consolidate your financial and investment accounts
While there are sometimes legitimate financial planning reasons for a higher level of complexity in relation to the number of different accounts you might hold, many times multiple accounts of the same type are unnecessary and only add to your stress level.
- Checking/Savings Accounts
Most people can get by with one checking and savings account at a local bank for your regular spending needs (these should be joint accounts if you’re married).
It’s also usually wise to have one additional savings account (joint if you’re married) for your long-term savings or emergency fund at an online bank or other provider that pays a higher than average interest rate.
If you struggle living on a budget and have credit card debt or other high interest rate debt, you should AVOID using credit cards altogether until you pay off the debt and learn to live on a budget for an extended period of time.
But even if you ARE living within your means, generally you shouldn’t need more than two to three credit cards: one for everyday spending, one as a “backup,” and possibly a store card for a store you shop at regularly that gives you a discount for utilizing their card (i.e. Target, Lowe’s, etc.)
If you’re married, you and your spouse should each be listed as the primary account holder on one of these accounts, with the other individual listed as an authorized user on the account they aren’t listed as the primary cardholder. This is both for the purpose of building and maintaining a good credit profile as well as prudent estate planning.
One caveat: don’t go out and close all those “extra” credit card accounts. Doing so may negatively impact your credit score in the short run. Instead, simply take the extra cards out of your wallet or purse and stop using them.
Typically, you don’t need more than one of each type of retirement account (one per person if you’re married).
For example, instead of keeping your 401(k) money invested with all your previous employers and having IRAs at several online brokerage firms, it might be wise to rollover some or all of those accounts to a single account at a single institution with lower fees and better investment options.
Before consolidating any financial accounts, particularly retirement accounts, talk to a fee-only financial advisor (like SageOak) to determine whether or not there there are good reasons to keep your money with your old employer and/or spread out across multiple accounts and institutions.
Also, be aware that some institutions may charge account closing fees so be sure to check with your bank or financial institution so there aren’t any surprises.
2. Automate, automate, automate
Once you’ve consolidated your accounts, the next item necessary to simplify your finances is to automate as much as possible.
- Saving and Investing
Research has shown that automating your savings and investing is correlated with higher long-term savings balances. The idea being obviously that you “set it and forget it,” so your savings accumulates automatically without you having to think about it.
To take advantage of this fact, have a portion of your check directly deposited into your savings and/or retirement account(s) or set up automatic transfers that take place a day shortly after your paycheck is direct deposited into your checking or savings account.
If you utilize a spending plan and have been successfully living on a budget for some time now, then consider using the auto-payment feature for most or all of your monthly bills. By doing so, you’ll minimize the time you spend each month making and keeping track of payments and hopefully avoid some of the stress involved with that task.
One situation where it may not make sense to “set it and forget it” is if you’re not living on a budget or you have high interest rate debt like credit cards or payday loans.
If you automate things in this case it’s very possible you’ll overdraft your accounts, which will cause unneeded stress and anxiety, while driving you deeper into debt. So, before automating anything, start living within your means and develop a plan to get rid of debt once and for all.
3. Go paperless
The final step to simplify your finances is to go paperless.
Almost every bank and financial institution allows you to receive your statements electronically, so sign up for that feature ASAP!
For documents that you can’t receive electronically, you’ll need a high-tech scanner that turns these physical documents into easily searchable PDF files for future reference. You can find a few good scanners specifically designed for this purpose here, here, and here.
If you decide to go the cloud storage route and have concerns about security, you might consider password protecting or encrypting documents with sensitive personal or financial information before uploading them to the cloud. Also, services like CrashPlan, Spanning, or Backupify can be a lifesaver if you’re the type of person who wants “a backup of your backup,” so to speak.
After you have everything scanned and filed away, don’t forget to shred any documents that you’re not required to keep in physical form.
Simplify your finances…it’s as easy as 1, 2, 3
As you can see, the three step plan to simplify your finances outlined above isn’t rocket science.
It just takes a little forethought and a few hours on a Saturday morning to forever reduce the stress and headache involved with managing your financial life.
If you’re not sure where to start, a good financial advisor (like SageOak) can help point out areas of your financial life that can be simplified, as well as those areas where a little complexity isn’t necessarily a bad thing.
Have a question about how to simplify YOUR finances?
Click the button above to schedule a complimentary 15-minute initial phone call at your convenience.