One of the primary reasons why people don’t like managing their finances is because they find the task confusing and tedious – this is mainly because their personal finances are complicated. I find that people tend to complicate their finances when it’s not necessary to do so, they have bank accounts with several banks, their brokerages accounts are all over the place, their investments are overlapping, etc. If you find yourself in a financial maze, I suggest you take a couple of days or maybe a weekend to find the way out of the maze and simplify your finances. Once you have your finances simplified managing money will be much easier and not so mystifying.
How to Simplify?
1. Close Unnecessary Bank Accounts.
There really is no need for having more than just one checking account, if you have multiple banks accounts consider closing all but one. If you are married than you may have more than one bank account, the best option for married couples is to have one joint account to pay household expenses from and two individual accounts for each member. Reducing the number of active accounts will simplify budgeting and expense tracking.
2. Go Paperless
Most financial institutions and companies now offer paperless billing; I highly recommend you take advantage of these. The great thing about going paperless is that you can not misplace or lose the statements, they will be available online to download and save on your computer and you can access them anywhere at anytime. And of course you will be saving trees!
3. Go on Autopilot
If you have several bills to pay chances are that not all of them are due at the same time and sometimes you forget some. Just set all your bills on pre-authorized payment plans, maybe through a rewards credit card, and just make one monthly payment towards your credit card. No need to remember ten different bill payments, just make sure you don’t forget your credit card bill.
4. Consolidate Brokerage Accounts
Like bank accounts, there is rarely a good reason to have several brokerage accounts. Too many broker accounts will make it difficult to keep track of your investments and can often cost you more. Consolidate your brokerage accounts to the one you feel the most comfortable with. It will make it easier to keep track of your investment portfolios and reduce the chance of overlapping investments. This can also be beneficial as often when your assets pass a certain threshold you receive discounted fees.
5. Monthly Review
Often people start off good with budgeting and calculating their net worth, but then forget about it for a year and have to start all over again because they don’t remember everything. Keep track of your budget and net worth on a regular basis; I suggest you do it on monthly basis like Frugal Trader does. It’s much simpler to make month to month updates and track changes than it is if you do it annually or semi-annually. Tracking your net worth and budget on monthly basis can also help you avoid financial disasters, imagine your are running a negative budget month over month, if you review it annually you could already be in trouble by the time you realize, but if you keep track of it on monthly bases you can quickly find the leak and fix it.
There is no magic to money management nor does one require special skills and education. Keep your finances simple and not only will you be able to manage them better but it will dramatically improve your chances of becoming financially independent.
This is a guest article by Ray, the owner and primary author of Financial Highway, where he discusses investing, saving and practical money management concepts. You can check subscribe to his RSS feed or follow him on Twitter.