Note: This is a guest post from Bob Lotich of SeedTime.
I began my journey into minimalism a little over a year ago, and soon began experiencing the benefits of having less and living a simpler life.
Running a personal finance blog, I began to ask myself, “How can I apply these principles to my money?”
I don’t know about you, but I have found that in my life, my finances are entirely too involved. And too often, I feel that they are controlling me.
Those aren’t ridiculous conclusions, considering how complicated finance has become on all levels, as well as the rapid pace of change that it throws at us.
But here are 11 ways to simplify your financial life and put greater control back in your hands.
1. Consolidate Bank Accounts and Retirement Accounts
Most people can get by just fine with one checking account and one savings account. If you have more, consolidate your various accounts into a single checking account and one savings account. You’ll simplify your banking, without resulting in any loss in service level.
The same is true of retirement accounts. If you have several, due to having previous jobs with 401(k) plans, simplify your life by rolling those plans over to a self-directed IRA account. Not only will this reduce paperwork, but it will also eliminate account fees, and make it much easier to manage your retirement assets.
2. Get Rid of as Much Paperwork as You Can
Having multiple accounts for various financial pursuits can lead to piles of paperwork building up around your home. You may not even take the time to read through them, but the existence of large amounts of paperwork can be stressful all by itself.
Get rid of any paperwork that isn’t absolutely necessary, and shift account statements and notifications to online. And if you’re reducing the number of financial accounts that you have, the amount of correspondence will drop anyway.
3. Cut Back to Just One Credit Card
If you have a passion for rewards and zero interest rate promotions, you may have built up an impressive inventory of credit cards. But once the rewards and zero interest are gone, the cards have little value.
Keep them open for credit scoring purposes, but focus your credit card use on a single card. Choose the one that offers the best benefits and put the rest away. It’s much simpler to manage your spending and handle payments with a single credit card then with five or ten.
TIP: For most people wanting a good rewards credit card, the Chase Sapphire Preferred is the way to go.
4. Become Debt Free
Debt doesn’t just cost you money, it also makes life more complicated. Not only do you have to spend more time paying bills, but multiple debts are serious sources of stress. Think of it this way: Each debt that you eliminate takes out one complication in your life.
One of the very best ways to simplify your financial life is to get out of debt. It won’t happen overnight, but just establishing a plan to make it happen can go a long way toward simplifying your life.
5. Invest in Funds Rather than Individual Stocks
Investing in individual stocks can be fun and rewarding, but it’s also messy. You have to research, purchase, track, and sell each stock in your portfolio. If you have dozens, it can be the equivalent of a part-time job.
You can avoid all of that hassle by investing in either mutual funds or exchange traded funds. Index funds are particularly attractive, since very few actively managed funds ever outperform the market.
Funds are also much simpler when it comes time to file your tax return. Individual stocks require a lot of tax related documentation, and that can also raise the cost of tax preparation.
6. Pay Cash Whenever Possible
Yes, it sounds old school, but it does have its advantages. It avoids getting receipts, and tracking expenses after the fact, the way you do with both debit and credit cards. With cash, you can make your purchase and move on.
Use your credit card on larger purchases that may require buyer protection or a potential refund situation. Then simplify your financial life by making your smaller purchases in cash.
7. Cut Out Any Services You Don’t Need or Regularly Use
You probably pay for subscriptions and services that you hardly use. By eliminating them, you will simplify your life and remove yet another payment from your budget. The fewer payments you need to make, the simpler your finances will be.
8. Cut Down on Your Goals
It’s important to have goals established to achieve important milestones in life. But you probably can’t successfully manage more than one or two goals at one time. In fact, multiple goals can spread your efforts in too many directions, and cause needless confusion.
Pick the one or two goals that are most important to you right now, pursue them with a vengeance, and let the other goals go for another time. Your chance of succeeding in any one goal will then increase dramatically.
9. Rent a Home Rather than Owning
There’s a world of documentation supporting the emotional and long-term financial benefits of homeownership. But owning your own home comes with a long list of expenses and responsibilities that you wouldn’t have if you rented. For example, you wouldn’t need to be concerned about repairs, maintenance, or HOA special assessments. Your landlord would be responsible for those.
Generally speaking, renting reduces you to just a monthly rent payment, and a small number of utilities. Anything beyond that will not be your concern. That will simplify both your finances and your life.
10. Do More of What Brings in the Most Income
This applies most directly to the self-employed and to commissioned salespeople, but it does have relevance to salaried employees as well. The idea is to focus most of your efforts and time on the work activities that are likely to generate the most income. Reduce the amount of time you spend on administrative functions by either offloading or subbing them out to someone else.
For salaried employees, this could be concentrating effort on activities that are likely to produce a larger bonus, or put you in a better position to be promoted.
This single change in strategy can both increase your income, and simplify the income earning process of your life.
11. Turn off Your TV and Go Easy on the Internet
Information is good – to a point. But after that, it turns into noise and promotes mental clutter. The “experts” on TV and the Internet are there to relentlessly inform you that you need to do this, or to stop doing that, or to buy here, or to invest there. It’s an advice merry-go-round in which the specific advice always changes, but the flow never ends.
Confusion is never a sound position from which to simplify your financial life. Limit the amount of information you take in, restricting it only to the most trusted sources, then tune out the rest.
Implementing just a few of these changes can go a long way toward simplifying your financial life.
Now, I’d love to hear from you. What have you done to simplify your financial life?
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Bob Lotich is the founder of SeedTime, a blog designed to help people live financially free lives. Stop by to take the FREE email course to help you get control of your money.
Rita Stewart says
Thank you. It’s amazing how simplifying can be so empowering.
Kristal Marie says
These are really great tips. I especially agree with #4. Nothing complicates our financial life more then debt. Of course #6 helps maintain #4. I very rarely pay for anything, other then with cash. Another thing we did that really helped simplify was to cut out cable. We did that a few years ago, it was tough at first, but now I can’t imagine dealing with cable, so thankful we did it.
Vince Imbat says
Your thoughts are so beautifully simple.
Roberta Yearwood says
I disagree with the ‘renting instead of homeownership’.
Yes, it may cost more to invest in home-ownership but in the long run, it’s worth it. The money that you’re putting in is for something that is going to be yours (or already is yours). With renting, yes, it may cheaper but you’re investing into something that you have no potential in owning. You can sell your house, you can rent parts of your house, you have the freedom to do what you want with your house, you can pass it down to your children and etc. With renting, there’s limits to what you can do. And as a matter of fact, sometimes the rent is much higher than the mortgage that you’d have pay.
Bob Lotich says
Roberta, 1. The point of this article is how to simplify your finances, not which one is the absolute best financial decision. And most people would agree that renting is a lot simpler than owning.
2. As far as which is better financially, this is an eternal debate that never seems to end and from my experience doing both for many years I prefer to own, but in many cases the benefits are negligible if any. Paula Pant did a great analysis that I would recommend checking out here… http://affordanything.com/2015/11/24/is-renting-better-than-buying-should-i-rent-or-buy/
Regan says
Great information as always although I don’t necessarily subscribe to the idea that we should all be putting our money into index funds or ETF’s.
No doubt they have their place in someone’s portfolio, but question this idea that this is should make up the majority or all of one’s holdings.
The notion that few actively managed funds beat the index so there’s no point trying is crazy. A good fund manager (particularly in a falling market) is worth their weight in gold.
Food for thought…?
Shannan says
Bob, your advice was refreshing. #11 really spoke to me about my the “advice merry-go-round” of the internet for many aspects of my life, not just the financial area. The many ideas I gather just create mental clutter.
I’m reviewing what I subscribe to in my RSS reader right now and asking what the most trusted sources? I’ll delete the rest.
Thank you for your guest post.
Bob Lotich says
Great idea Shannon, and you might want to check out a free service called Unroll.me – a very simple way to eliminate and better organize all your subscriptions.
John P. Weiss says
Bob- I liked the “cut down on your goals.” I used to have goals all over the place, and didn’t accomplish much. Then I simplified and found that sustained focus on only a few goals leads to greater success. Thanks!
Bob Lotich says
John, I am with you. I used to fall victim to the same thing. Ruthlessly focusing on one or two main goals has helped me get so much more done.
Dorita Rosewitz says
On home ownership I disagree. Eight years ago I bought an one bedroom condo. Two years ago I retired. Now the rents where I Iive are higher than mortgage, HOA & utilities. Every year when I rented my rent went up. Talk about stress. On my pension I could no longer live in the area of my choice.
Vicky says
I especially love tip 9. In a culture of home ownership, I have always loved the freedom of renting. As a result, I’ve been able to enjoy the moment and day-to-day pleasures of living in memorable, beautiful locations that would otherwise have been financially out of reach. It’s not for everyone but equally I ‘owned’ a home once for a year in the city while in a corporate job. I suddenly felt shackled by having a mortgage. I sold up and just escaped the credit crunch of ’07. A year later, after leaving the job and going travelling using the small profit I was left with, I rented a beautiful home by the sea, set up my own little business and aside from a few panic moments, I’ve never looked back.
CountryMouse says
I love that – “aside from a few panic moments, I’ve never looked back.” Thanks for keeping it real. Even when it turns out well things sometimes require some panicking!
Renting saved my family’s hides during the recession. We got so many negative comments about not buying a house when the market crashed and rates dropped, because “it’s a great time to buy!” Well, not for us. We looked at our job security (and lack thereof) and said absolutely not. Being renters, we survived the recession by being able to cut our losses and follow the work across country and back as we could find it.
My house-owning friends were angsting over the real possibility of losing their job and stressing because they were tied to mortgages and a house and couldn’t up and move for work if needed. One had to turn down a promotion to a place she loved because she couldn’t move since her house wouldn’t sell in the down market. We don’t plan to rent forever, but we’re not interested in locking into a house until we’re sure we won’t be moving again for work for quite a while.
Staci says
Feeling “shackled”. Yes! This is how I feel. We are putting our house of 12 years on the market in the next couple of weeks and we can’t wait to rent and be free. Its not for everyone, but we’re very excited about it. I keep using the word “tethered”. I don’t want to be tethered to a house any longer! If I want to move somewhere new every year – so be it!
joy says
I think it’s common for people to mask their uncertainty over their own life choices by insisting that anyone on another path is doing it wrong. I finally paid off my student loans, but it will still likely be a few more years until I will have a down payment ready for a small place. Part of me would love to own, but renting allowed me to build financial stability – a luxury that even many homeowners don’t have.
Melanie says
Good job, Country Mouse!
It sounds like you made a good decision, and that it worked out well for you.
:)
Melanie says
Vicky!
I am so happy for you! I too prefer to rent my home now.
It sounds like you have created a beautiful and fulfilling life for yourself. It sounds absolutely wonderful! Good for you!
Enjoy!
Bob Lotich says
Thanks Green Swan!