In the world of finances, more is usually more. But when it comes to administration and bookkeeping, less is more.
One of the most powerful resolutions you can make is to simplify your personal finances. Paring down your accounts, files, bills, systems, and so on, can make it easier for you to stay on top of your money.
There’s a Zen-like awareness that comes from being organized and in touch with every aspect of your money. If managing your money takes too long or is difficult, you’re likely to put it off or to spend your time doing something that you enjoy more.
These tips can help you automate and streamline your finances – giving you more time to do the things that are important to you.
Create an Organizational System
Organization starts with you. The sooner you take matters into your own hands, the easier managing your finances will be. How you organize your finances is up to you. My personal system is a combination of physical and digital folders.
The physical folders keep official documents that need to be maintained. This includes both financial and non-financial documents, such as birth certificates, marriage certificates, passports, car titles, and similar documents.
I only keep physical financial documents when needed. The rest of my financial documents are digital and are maintained with a filing system such as Account_YYYY_MM_DD. This helps me keep digital items better organized.
Creating your own organization system keeps everything in good order and helps prevent things from falling through the cracks.
Reduce Your Total Number of Financial Accounts
The more financial accounts you have, the more work it takes to manage your finances. It seems like a simple statement, and it is. But consolidating accounts takes planning and work. And in some cases, you are stuck with certain accounts. This is common for retirement accounts at your current employer, health savings accounts, loans, and other specialized accounts.
Consolidate Banking Accounts
It’s not uncommon for people to have several bank accounts, but most people can get by with a local bank and an online bank for better interest rates. This is my preferred method of banking. I use an online account for higher interest rates, and a local bank or credit union when I need access to a physical branch.
Consolidate Investment Accounts
Many people have multiple investment accounts. This makes managing your investments much more cumbersome when you balance your investment portfolio and when you do your taxes.
Consolidate your investment accounts whenever possible by using one brokerage or investment company. That move allows you to log into one online account, receive one statement, and to deal with one institution when you have questions.
You can move 401(k)s from previous employers by doing a tax-free rollover into an IRA or into a retirement plan at your new workplace. IRAs can also be transferred to one brokerage account for easier tracking. Here is a list of the best places to open an IRA.
Your investments will be much easier to monitor when they’re in one place.
Reduce the Number of Credit Cards You Carry
The average American carries between 4 and 6 credit cards.
Access to easy credit can be convenient, but it can cause problems for some people. Reducing the number of credit cards you keep can reduce the amount of mail you receive and make it easier to manage your money.
Just keep in mind canceling a credit card can affect your credit score. You should probably leave the oldest card open and make sure canceling any credit cards won’t make your credit utilization too high (amount of credit used vs. the amount of available credit).
Here are more tips about the effects of canceling a credit card.
This won’t apply to everyone, but it may be a lifesaver for some.
One way to do cut down your bills is by consolidating your debt. If you are making multiple credit card and other payments each month, you might consider reducing the number of bills you receive and need to pay each month.
Don’t worry, you don’t need to pay a company thousands of dollars because you can consolidate your debt on your own.
An easy way to consolidate your credit card debt is through a 0% balance transfer, which allows you to transfer your credit card balances to a new credit card at a 0% interest rate.
There is usually a fee, but it typically maxes out around 3-5%, much lower than the average credit card interest rate, which hovers around 20%.
This tip can simplify your bill paying and save you money.
Streamline Communications and Documents
Manage Your Mail More Efficiently.
To make sure you don’t let papers pile up, sort your incoming mail in a portable file box with hanging file folders.
Keep the file box in a handy location where you open your mail, like the kitchen or your home office and use different folders to sort receipts, bills, documents to shred, documents to file, and so on, until you can process them.
The average person receives 560 pieces of junk mail each year, or about 1.5 per day.
A great way to minimize the clutter is to stop junk mail and opt out of pre-screened credit offers, leaving you with the more important pieces of mail to deal with.
From there set up a system that works for you.
Some people find it easier to do batch processing, where they go through a week’s worth of bills and correspondence at one time, and others prefer to deal with it immediately.
Experiment to find which method is best for you.
Sign up for a Do Not Call List.
You can also opt out of annoying phone calls by signing up for the Do Not Call List.
This step won’t stop phone calls from companies you currently deal with or charities, but it should stop unsolicited phone calls from mortgage brokers and debt consolidation companies.
Handle Email More Efficiently
My wife and I set up a dedicated email account through Gmail for our finances, insurance, and online shopping accounts. We don’t use it for anything else, including communication with family and friends.
Use your personal email account for personal items and a dedicated email account for finances and official household business.
Be sure to opt out of store emails and coupon offers as most of these are just clutter you won’t read anyway. The result is a clean inbox with actionable items.
Whenever possible, opt to receive electronic statements, which has multiple benefits, including less mail to process and a lower environmental impact. Some companies, like Vanguard, will also waive fees if you go paperless.
Most financial institutions, credit card companies, utility companies, and service providers offer to deliver your mail electronically. They help protect you from identity theft, reduce the amount of paper you have to process or shred, and allow you to centralize all your incoming financial documents.
You can go online to view older documents or print them out if needed. If you prefer paper statements, get a document scanner so you can scan the document for your records.
Then shred it; reducing clutter at home.
Automate Your Finances as Much as Possible
Automation saves me an immense amount of time each month. But that doesn’t mean to set it and forget it, you still need to monitor your accounts. This section covers automation. See the next section for how I track my finances.
Use Automatic Bill Pay
Autopay is a fantastic way to save time and money and to make sure no bill ever falls through the cracks.
Most online savings accounts offer free bill pay as part of their service, and it has become very common through most brick and mortar banks as well.
Set up as many bills on autopay as possible, reducing the amount of mail you send and receive, and reducing the time you spend worrying about paying bills.
You can also link some payments to your credit card each month so you can take advantage of rewards points or cash back.
Only use this method if you are certain you can and will pay your bill in full each month.
The bill service either transfers your money electronically or mails a paper check to any individual or company in the country that you want to pay—whether it’s your next-door neighbor or your mortgage lender.
Automate Your Investments
Just like paying bills, it is easier to invest when you don’t have to sit down and write a check or initiate an electronic funds transfer each month.
Set your basic asset allocation and make automatic payments for your investments. This can often be done through work via 401k contributions or a payroll deduction.
You can also do automatic transfers through many brokerages, investment houses, or other financial institutions.
Be sure to go over your asset allocation every so often to maintain a balance with your investments.
Regularly Monitor Your Finances
Managing money is much easier when you know how much is coming and going, and where it is coming from and what you are spending it on.
I track my finances monthly. I use a net worth spreadsheet I built that tracks my account balances for each financial account I have. This includes bank accounts, retirement, health savings accounts, college savings accounts, and my house value and outstanding mortgage balance.
I also track actions I take each year, such as Roth IRA contributions, 401k contributions, estimated tax payments, and other big-picture financial actions I want to track.
Keeping track of my finances helps me ensure things are moving in the right direction and helps me to avoid making expensive mistakes.
Use Personal Finance Software
In addition to my custom spreadsheet, I also use online money management apps. (I use Personal Capital, but there are many other great tools).
Our favorites are Mint.com and Personal Capital.
Simplifying your finances only takes a small amount of time and effort to set up and maintain and it can save you time and money by reducing clutter and wasted energy.
It’s a win-win situation!
With a few simple actions, you could declutter your life, making your money management a breeze.