Studies show that folks with complex finances also have the least healthy finances. Here’s how to lead a simple money life.
If managing personal financial affairs were easy, we probably wouldn’t graduate in excess of 15,000 accountants each year. Budgets, credit cards, insurance, retirement savings and more—it’s a lot to track, and things are getting more complex all the time.
A lot of people are losing the battle. One in three adults who say their finances have taken a turn for the worse also say their finances have grown more complex, according to a survey from Aite Group and Chase Blueprint. Likewise, 43% of those who say their finances have improved also say their finances have grown less complex.
Simple is good. It’s understandable. It’s manageable. It doesn’t eat up a lot of time. It breeds confidence and makes tough decisions easier. “The financial frenzy people experience comes from being disconnected from their personal income,” says Melody Juge, managing director at Life Income Management.
Some things can’t be made simple. Income tax filing comes to mind, at least for some people. So do retirement account distributions. You can’t know how long you’ll live. But other things don’t have to be so difficult. Maybe you can get control of your money with a few simple tricks. Here are nine ways most Americans can simplify their personal finances:
- Get down to one mutual fund You’ll get great asset allocation and solid diversification within asset groups with just one target-date mutual fund. These are the fastest growing corner of the retirement savings world precisely because they are so darned simple. Choose a target-date fund for the year you turn 65 or 70, put all your retirement savings in it and go about the rest of your life knowing you have professional management and an asset allocation that will become more conservative as you age. Of course, there are drawbacks and you’ll have to look out for expenses when you choose. But investing for the long haul has never been simpler.
- Keep two credit cards Dump the rest. You will save a bundle in annual fees and rid yourself of umpteen bills and solicitations. Use one card for monthly spending and the other only when you must carry a balance. Keep cards with the lowest interest rates or annual fees, or those that offer useful rewards.
- Pay bills online Most banks offer an online bill-pay service for no charge. Stamps, envelopes and physical checks are an obsolete expense. You’ll save time too. But best of all, your bank will automatically keep track of what you spend and where you spend it for easy review, which makes budgeting a lot simpler.
- Choose one financial institution Large financial firms offer the same basic range of services and accounts. You can probably get everything you need in one place. Stick with one. You’ll not only get better service as a bigger customer but cut down on monthly statements and get a better picture of your overall finances.
- Automate everything Arrange for direct deposit of your paycheck to eliminate trips to the bank. Arrange for regular payroll or bank account debits to your retirement account—and for automatic increases in the amount as you get pay raises—to keep savings on track. Arrange automatic monthly payments via your online bill pay system to creditors to cover the minimum due and avoid late fees.
- Get overdraft protection Link your checking account to your savings account to avoid the cost and hassle of overdrawing your account.
- Create an emergency fund The goal is to set aside six months of living expenses to guard against unexpected expenses that derail your plans. But don’t let what may seem a large sum deter you. Start with $500, which is enough to cover the cost of most minor household emergencies. Add $100 a month until you reach your goal.
- Pay yourself first You should be saving at least 10% of what you make every month. Write that check first and budget to live off of what’s left.
- Get organized through new technologies Account aggregation through your bank or a service like Mint.com will allow you to view all your accounts in one place, says Linda Sherry, national priorities director at Consumer Action. She also recommends using a password manager like 1password or Dashlaneto simplify your online transactions from any device, and setting up a folder in email for increasingly common online account statements.