Don’t Be Afraid of Finances – Just simplify them

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.

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Greg
12 years ago

@FrugalTrader, yes, Yodlee does support Canadian banks and credit card providers. I have tried TD & AMEX. I have only just started playing with it, so I’m not an expert. It has many of the same functions as Wesabe such as categorizing transactions. It also has a budgeting section. It also appears to be able to display brokerage account info (such as TD Waterhouse), but I haven’t set that up yet.

I played with Wesabe for a while, but gave up in frustration. Yodlee is able to download account data automatically from banks, brokerages and credit card companies which Wesabe can’t do.

For my budgeting, I have been using YNAB (www.youneedabudget.com). It is software that runs locally on your computer and from a purely monthly budgeting perspective it is far superior to anything I have found so far. The main problem is that you have to download all your bank and credit card info manually. YNAB has a free trial, but but it you’d have to buy it if you want to keep using it. There are also really great user forums and the tech support is great too. It comes with a philosophy that is aimed at helping people who are in debt and need help getting out, but it also works well for those of us that just want to be better able to track our expenses.

– Greg

Greg
12 years ago

@cannon_fodder, there is a service that can aggregate all your accounts. It’s http://www.yodlee.com . I have only just started playing around with it, but so far so good. It’s also free (it appears that they make their money selling the service to banks).

– Greg

FT
12 years ago
Reply to  Greg

Greg, does yodlee support Canadian banks and credit card providers? Have you tried Wesabe?

Jillian Frye
12 years ago

Just because you don’t have a filing cabinet full of paper doesn’t mean you can’t keep track of your records with paperless billing. Many banks are moving in the direction of providing customers with downloadable ebills for a year and a half, if not longer. Definitely suggest simplifying your financial life by putting all your bills in one place so you don’t have to worry about forgetting anything. Paperless billing is the easiest way to keep track of your money.

Jillian Frye
12 years ago

Just because you don’t have a filing cabinet full of paper doesn’t mean you can’t keep track of your records with paperless billing. Many banks are moving in the direction of providing customers with downloadable ebills for a year and a half, if not longer. Definitely suggest simplifying your financial life by putting all your bills in one place so you don’t have to worry about forgetting anything.

DAvid
12 years ago

cannon-fodder asks: “I have seen presentations (i.e. demos, so I don’t know if it was the future or present offering) about banks in the US who can aggregate all of your bank accounts, brokerage accounts and even bills on one web portal. Does any bank in Canada offer this yet?”

Royal does, so I expect others do as well. Here’s a quote from their website:

Change your existing account information or add your Online Banking loan, mortgage, investment brokerage and credit card accounts from other financial institutions. Each time you sign in, your selected online account balance information will appear in one convenient, comprehensive page.

DAvid

Loving paperless
12 years ago

Greg and Maiku
I have been using e-post for a year now and love it. I can download my bill and pay it immediately. Right now, I still print the bills as I have rental apartments, but since I have never been audited by CRA, I am considering just storing them. I store copies of all my bills and statements on a USB drive. That way, they are off my computer and don’t take up a lot of space.

I have also changed all my bank accounts to paperless. After a few months, you get into a routine of which bills/statements are available when.

cannon_fodder
12 years ago

DAvid,

You’re absolutely right… otherwise, I’d have my car payments, mortgage payments, property taxes, etc. all coming out of my rewards credit card!

Ray – I have to admit, I love technology, but for some archaic reason I do like having paper statements. I have years of statements so that if something were to come up, I could go to it. But, while it wasn’t available years ago, most institutions can offer paperless record keeping. What I guess I am waiting for is the big payoff – when they have so few people actually receiving paper statements that they offer us a nice incentive to go electronic. I don’t think our utility bills are electronic but perhaps if we went with epost…

Maiku – the only bill I have at epost is the Hwy 407 bill. As a result, it isn’t any more efficient because I’m not consolidating them.

I have seen presentations (i.e. demos, so I don’t know if it was the future or present offering) about banks in the US who can aggregate all of your bank accounts, brokerage accounts and even bills on one web portal. Does any bank in Canada offer this yet?

used tires
12 years ago

One other worthy note in regards to closing unnecessary bank accounts, and something I learned in my Money and Banking course 2 weeks ago…. anyways in the USA… if your bank fails and goes bankrupt, you’re money is protected up to $250,000 by the government, now… if you are a rich person and make alot more money than that… even if you have 3 accounts and spread that out between the banks… that does not mean they will reimburse you on all 3 accounts if all 3 banks that you hold a bank account in go bankrupt. Because… the $250,000 is insured for an “individual” and not “individual bank accounts”.

I know that was random… but hopefully it will be good food for thought for some folks who open multiple accounts for this reason.

Till then,

Jean

Greg
12 years ago

@Maiku, I also use ePost.ca and have done for a little over a year now. You can keep all of your existing preauthorized payments and just have the bills sent to epost where you store them. You are not in any way obliged to use the epost payment service. My bank also has an epost link, so I can check my bills from my bank website. epost also sends you an e-mail when bills arrive.

This problem with downloading and storing bills locally on your computer, is that you need to back them up. If you have a computer crash, they’re all gone. (Computer backups could be a topic all by itself.)

ctreit
12 years ago

I think that the “Monthly Review” is not mentioned often enough. It may sound like it adds to the workload, but I think in the long run it keeps finances simpler if you keep on top of them. If instead you chose to clean up your finances only once in a while, you may have such a daunting task ahead of yourself that you give up before you get started.