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?