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.
Mrs. Picky Pincher says
All fantastic ideas. :) When Mr. Picky Pincher and I got married, it took some time to simplify our finances. But now we have one credit card, one savings account, and one checking account. That’s it. We’re proudly living on just 50% of our income, which enabled us to pay off $14,000 in credit card debt.
Getting rid of debt is hands-down the best way to simplify finances and remove a lot of stress.
Paige says
Thank you so much for including renting as a way to simplify! It truly has facilitated a much simpler way of living for me personally. Culturally there is a lot of pressure to own a home and very little support to forgo that goal in life. I am a nurse and absolutely love having the flexibility to practice my profession in different communities (in the U.S. and worldwide) as well as the ability to go to the graduate program of my choice without having to figure out what to do with my home. For me, owning a home again would limit me. Even though renting is a choice for me and I have no desire to ever again exchange my freedom for home ownership I still have micro-moments of shame surrounding renting, especially when meeting new people. Renting (except in very large cities) is often perceived in the U.S. as “not having arrived” financially or not being financially savvy. I am so appreciative for your validation that renting is sometimes a better option, especially where simplicity is concerned. Thank you for giving a voice to this and giving it credence.
FinanceSuperhero says
Great list of actionable items, Bob. I especially agree with your point about watching less TV. I have noticed a direct correlation between my personal and professional success and the amount of TV consumption.
The average adult reads very little if at all and watches hours of TV each day. These are the same people who complain about being “busy.”
Shawn says
These are great advice. But renting instead of owning a house? I thought property prices are going up over the long-term?
In my country, the rent is almost the same as the monthly mortgage payment. So owning might be better. :)
Cynthia says
Great tips! ;)
Amy@MoreTimeThanMoney says
I live by 1 to 8, and would definitely recommend these as tips for anyone.
With regards to 9, I agree that renting is certainly financially simpler than owning your own home. However, renting can come with other complications. Where I live the housing market is very tight at the moment (driven by the popularity of the area with those seeking a simpler life!). It is difficult to find somewhere to rent or buy. Friends renting face a lot of uncertainty, with landlords selling up to realise capital gains. Some have had to move more than once a year because of this – and we all know how far from simple moving is. Other friends have had to settle for a place across town, commuting their kids each morning to school with the hope they will be able to find a place to live in the area eventually.
I am glad that you include 9, as so often we blindly follow the homeownership dream like the “American Dream” when it may not be what is best for us given our goals and state of life.
Helpful Millionaire says
There were some good thoughts and tips in this article… however, two points are really bad advice: 1) don’t purchase individual stocks but instead funds because they are easier to manage, and 2) rent don’t own. Better advice would have been to say understand your investments and don’t just put things on “autopilot”… as well as “rent until you CAN afford to own.” Not understanding investments and real-estate breaks leaves a ton of money on the table unnecessarily.
Brittany G. Cook says
Love this, thanks for posting! Many of these are areas are family has simplified over the past three and half years, and I’m excited to be debt free by next spring to begin looking into investments.
The one area that was actually more simple for us was using our debit card instead of cash. We tried the cash system, and it made keeping track of our expenses more complicated in the day to day purchases. On the other hand, using a debit card also takes more diligence in sticking with our budget–so I guess it depends on your organizational style.
All good stuff, thanks again!!
lahope says
I have followed most of the 11 points for years: paying cash for everyday purchases, consolidating retirement accounts, one credit card, online statements etc; however, you are foolish if you can afford to buy a house and don’t. The house I bought sixteen years ago has added over a million dollars to my net worth. My house payments are about on par with a one bedroom apartment in my area. Furthermore, by participating in the home sharing economy, I’ve added to my income considerably. I use the additional income generated by homesharing for upkeep on my house as well as those unexpected expenses that pop up from time to time.
CountryMouse says
” you are foolish if you can afford to buy a house and don’t.”
I don’t agree with this at all – it’s really a matter of personal preference once you can afford to do either comfortably; some people do prefer freedom of movement to property investment, and that’s fine for them – and I don’t believe judgmental name calling is really that useful – but I will add this to your argument: one big trouble is that a large number of people seem to be confused about whether or not they can truly afford a house and if their job/income is stable enough to merit a mortgage.
See: Recession of 2007+, housing market crash, subprime mortgage crisis, risky lending standards, income falsification, “underwater on the house”, unsustainable mortgage debt, foreclosures, rise in homelessness and food insecurity among the middle and lower classes.
None of THAT is going to simplify anyone’s financial life.
If property investing is where you want to put your money, that’s fine for you. Some people like their assets more liquid, and that’s fine for them. Either way, the important part is actually knowing what you can and can’t afford long-term.
Camilla says
#2 Paperwork -check
#3 Creditcard -check
#4 Debtfree – in the end of the month, yay!
#7 Cut services -check
#9 Rent home -check
#10 More income -check (dumpster diving)
: D