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.
Jared says
I love your blog. My wife got me interested a few months ago. Generally this post is spot on, but I do question the general claim that renting is better than buying, yes you are locked in on a loan you would never otherwise consent to, but their are certainly economic sensibilities to buy vs renting. In Colorado for instance, the housing prices are skyrocketing in turn causing rent prices to rise at an unaffordable rate based on the average income. Luckily my wife and I purchased at a time that the market was reasonable. To rent now would be nonsensical as we’d pay 20% more for rent, so it is more economic for us, but that won’t always be the case
Jon says
Some good advice but some I don’t agree with
Cutting down on credit cards does make your life simple but it isnt good for your credit score. By automating payments you can do the best of both worlds. Have all your payment days changed to the same day so you know the day everything needs to be paid automatically.
Also cash for everything? Putting everything on your credit card can monitor every aspect of your spending and show you what you spend the most on.
All in all I like the advice more of the book I’ll teach you to be rich.
NatesMom says
I’ll add one more I’ve learned the hard way after my son was born early and spent a month in the NICU, relating to exorbitant medical bills: negotiate a payment plan directly with the provider instead of paying with a credit card. Especially if you contact them right away and explain your willingness to pay but your limited means, not only will most providers be happy to setup a payment plan with no finance charges, but you may even be able to negotiate down the bill or apply for financial aid. At worst, even if it’s just $5 a month, they can’t legally pursue you for collections as long as you never miss a payment, no matter how much they may threaten. Or so says my sister who’s been a Medical Biller in CA over 10yrs.
Diana says
good advice for the most part.
In my part of the world, however, renting is not a better option to owning if someone wants to stay here. The prices of homes have gone up so much, and developers are making so much money, that rental buildings are being demolished for new condos and highrises — especially near transit hubs. Those who have lived here for years in their suites and invested their lives in their communities are now facing the very real possibility that they will be evicted, and that there will be nowhere else they can move to rent. And, because of the high demand, if there is a rental place available it will be well over most budgets. At least one landlord started a bidding war on his rental unit — no set rental amount; instead, he had an open house, and the suite went to the highest bidder.
Suzy Harris says
My biggest piece of advice is do not charge anything on your credit cards that you can not payoff when the statement arrives. Always think if you really need the item you are charging. Keyword is having a BUDGET and sticking to it.
Chris says
Can you combine Roth IRA’s with 401’s and other IRA’s, etc. ? Thank you
Amanda says
Typically you have to keep pre-tax and post-tax account separate. So 401K can be rolled over into another 401K or IRA. Roth 401K should be able to roll over into another Roth 401K or Roth IRA.
Melanie says
Hi Bob,
I really loved this post. Thank you for sharing.
Number 8 is great for me. I’m currently working on getting myself in the habit of focusing on just one or two goals at a time. It has already made a huge difference! For most of my adult life, I’ve always had a huge “Goal List”. In so doing, I created stress, anxiety, and disappointment for myself because I was for the most part unproductive, and lived in a nearly constant state of overwhelm. Thanks again. Looking forward to checking out your website!
Dividend Diplomats says
Great list! Even picking just a handful of these will go a long way. My wife and I recently consolidated to one bank account and LOVE it. It makes life so much simpler. One less log in, one less bank account to worry about. The small things go a long way!
Bert
Sarah Anne Hayes says
One of the best things I did to simplify my financial life actually goes against one of your tips, but for me it works — I established a separate checking account for travel expenses. That way, when I go on trips, I don’t have to track the expenses in my general checking account and question if I’m going over budget or anything like that, because I know everything in the travel account is designated for that trip.
Katie says
Awesome post! I especially love cutting down your goals and renting instead of owning a home.
My husband and I recently simplified our finances and started working with a financial planner. We had too many goals (save for a next car, emergency fund, vacation, house, etc) that it was becoming overwhelming and we weren’t getting anywhere with any of it. We are now focusing on no more than two goals at a time and are doing much better because of it!
I didn’t read all of the comments on renting vs. owning, but this is a debate I hear all the time. We currently rent. We are looking to move out of state within the next year, so buying a home is not realistic. There’s no right or wrong and just because someone rents their home doesn’t mean they are throwing their money away. There’s pros and cons to both – everyone is different and everyone’s situation is different. We would love to own one day, but are in no rush. All we care about is a safe roof over our heads, food in our bellys, and clothes on our backs. :)
Katie says
Also, just because you can afford to do something, doesn’t always mean it’s the right decision.