Do you have a hard time keeping up with your finances? Many of us do. This contributes to missed payments, overdraft and bad credit scores. This means thousands of dollars in extra fees and interest. That’s money that you could be using. When we don’t know what’s going on with our finances we’re throwing money away and risking significant financial trouble like bankruptcy and foreclosure. Let’s talk about some ways to simplify your finances and get back in control.
Why should we simplify our finances?
Research tells us that as the amount and complexity of information increases, we’re less likely to take action and make decisions. This means that unless we simply our finances and make them easier to understand we’ll continue to fall behind, miss opportunities and throw money away.
Research also tells us that falling behind, missing opportunities and throwing money away are the best ways to stay broke… Let’s get started.
What kind of information should we have frequent and easy access to?
There’s a lot of financial information that we need to keep up with, here are some examples:
- Cash flow (money in vs. money out)
- Account balances (savings, checking, etc.)
- Credit card balances
- Other debt balances (mortgage, car loan, etc.)
- Bill payments & due dates
Without this information we’re driving blind, wasting time and losing money. That works for the credit card companies who want you in debt for the rest of your life, but don’t you want to be debt free and financially independent someday? Having access to this information will allow us to make better decisions and move towards financial independence.
What can we do with this information?
With this information we can do a lot of things to make financial progress and take advantage of opportunities. Here are a few examples:
- Prioritize debt to pay it off faster and save money in interest.
- Invest idle cash for better returns.
- Ensure account balances stay positive to avoid overdraft and other unnecessary fees.
- Setup automatic bill pay to avoid missed payments.
- Track cash flow (money in and money out) to find any unauthorized purchases or transactions.
- Compare interest rates to save money.
- Decide whether to refinance your mortgage or consolidate debt.
You’ve convinced me, how do I make it happen?
Our main goal is to be able to view all of our financial information in one place in a simple and easy to understand format. There are two primary ways to do this:
1. Use financial dashboard/aggregation software.
2. Consolidate your finances at as few financial institutions as possible.
Because it’s not always possible to completely combine our finances, we’ll often use both strategies.
Using a financial dashboard/aggregation software
This is the simplest method using free software like Mint.com. In addition to Mint there are other free and paid solutions, though I’m not too familiar with them. Personally, I recommend using Mint.com since it’s free, easy to use and has a free phone app so you can reach your information from anywhere. We’ll use Mint in this example.
At Mint.com you’ll register and create a free account. After making an account, you will link Mint to your financial institutions. This allows Mint to display information from all of your financial accounts in one place.
Mint uses top-level security and is read-only software. This means it cannot make any transactions, it can only view information. This is good because you don’t have to worry about anyone trying to make transactions through Mint.
Once setup, you’ll be able to get updated snapshots of your financial situation, stay informed and make better decisions with your money. Imagine the ability to view all of your bank accounts at one time on a single computer screen, that’s what Mint.com gives you.
Consolidating your finances
This is the most time intensive option, but has potentially more benefits down the road. This option is not possible for everyone depending on their situation.
The goal here is to transfer your accounts to the fewest institutions as possible. For example, you’d transfer your savings, checking, credit card accounts and other accounts to one bank. For insurance you’d try to combine your life insurance and property insurance at one company (hopefully getting a discount in the process). For investments, you’d try to combine your investment and retirement accounts at the same company.
Having more of your financial information in one place makes transfers and other business much more convenient. You’ll also typically receive better customer service because the representative can see your other accounts, offer suggestions and offer quicker solutions to problems.
In terms of having all information in one place, this isn’t as effective as Mint because most people can’t combine all aspects of their financial life. This means that you likely won’t have all you data on one screen yet unless you use Mint, but by having your accounts in few locations you’ll have more control and an easier time making things happen.
Choosing which institution to stick with
If you belong to multiple institutions, you may have some trouble deciding which to transfer your accounts to. You should stick with whatever institutions gives you the most useful benefits, charges the lowest fees, has the best customer service, etc.
If you’re eligible, I highly recommend USAA (they’re not available for everyone). We use USAA for banking, investing, insurance…everything. What I’m getting at is that you should choose a bank that you love.
Consolidating your finances isn’t always possible and may not make sense to do it right away for many reasons, but it’s something to consider in the future. Do thorough research before making any changes to make sure you’ve planned well and don’t end up worse off than you started.
Here’s to a simpler finances and a brighter future
At the very least use Mint.com or something like it to gain a complete understanding of your financial life. That information alone is worth tens of thousands of dollars down the road. Whether it saves you money in fees and interest, prevents you from overdrawn accounts or simply saves you time, you owe it to yourself and your family to simplify your finances.
By immersing yourself in your financial data you’ll become more aware of your habits, find opportunities and take bigger steps towards improving your financial situation. As you see your account balances grow and debt levels sink you’ll gain more confidence and progress even faster.