Life is complicated. From the daily onslaught of media to the complexities of our calendars or even the incomprehensible instructions of how to get my smart phone to quit buzzing and beeping when I’m trying to sleep, we are faced with an increasingly difficult world.
Complexity can also impact your financial life. We often hear from investors who are overwhelmed by the number of investments, accounts, financial companies, banks, etc. Their mailboxes burgeon with statements, proxies and reports. Not knowing exactly what to do with this paper tsunami, they either collect it in piles (risking exposure on reality TV Hoarders) or they discard it all and fear tossing something important.
We believe that successful investors are focused on simplifying their financial lives. Simplicity reduces stress and clutter, leading to better decisions and more financial peace. Here are five simple ideas to reduce complexity in your finances:
1. Consolidate your accounts
Having many different accounts with different financial companies makes it hard to track and manage your financial life. Generally one bank and one investment provider can give you the protection and diversification you need. While you do need separate accounts for IRAs and kids, you probably don’t need multiple checking or savings accounts. Nor do you need accounts at multiple investment companies, just find one that can provide you with objective, diversified solutions. (We know a good one!)
2. Automate your financial transactions
Use technology to make things easier by setting up direct deposits, auto debits for recurring bills (electric, home phone, cable TV, water, loan payments, etc.) and online bill-pay for other variable bills (cell phone, credit card). Sign up for average monthly billing with your utility company to take out seasonal surges.
3. Pare down your credit cards
Pick your favorite two cards with low interest rates and low (or no) fees. Cut up the rest and then consider closing the accounts. Don’t fall for the “save 10% today by opening a credit account” trick. You will pay much more than that in future fees and interest charges.
4. Get rid of the paper
You probably have files full of financial papers that you no longer need. Except for the last 7 years of tax returns, nearly everything you are now storing can be shredded and recycled. See our Guide to Retention document for details. Once you have de-papered, begin new habits based on TRAF principle – Toss, Refer, Act or File. Open the mail next to your shredder or trash can. Nearly all of it can be tossed. Then scan the stuff you need to keep and throw the paper out. Also sign up for “paperless” statements from your financial providers.
5. Get rid of 2 items for every one you buy
OK, maybe this isn’t a financial principle, but it is a great way to de-clutter your life. Find a great new shirt or pair of shoes – then you can donate that 90’s sweater that looked good on Bill Cosby and the shirt that went with it.
Financial complexity adds stress and wastes your precious time. There are only 168 hours in a week. Simplification can give you back some of those.
David uses Values Based Financial Planning to align your financial choices with your most important goals and your most deeply held values. He has a comprehensive process to consolidate, coordinate and simplify your financial life in a way that brings you more confidence and clarity about your future. Learn more about David here.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.
Securities and Advisory Services offered through LPL Financial. Member FINRA/SIPC.
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