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This article was written by our guest Barbara from Robo-Advisor Pros. All thoughts expressed are solely those of the author. Enjoy!
Do you feel as if your life is out of control?
With kids, bills, work, and activities it’s a challenge to feel in charge.
Even though my child is grown, and I work from home, I’m constantly fighting the battle of excess. The battle of excess is too much stuff, too many accounts, too many credit cards, excess receipts, etc.
If you’re seeking ways to simplify your financial life, here are some things to lighten your financial load. Be kind to yourself and take a weekend to simplify your financial life.
1. Simplify Your Financial Life and Get Out of Debt
Debt is like a demon sucking the life out of your finances. And you can never be financially free with a debt noose around your neck. Whatever sacrifice it takes today is well worth the pain for the reward of a financially-secure tomorrow. Use debt avalanche to simplify your financial life and eradicate your financial liabilities.
2. Simplify Your Financial Life and Know Your Net Worth
Your net worth is a dollar amount of your financial value. Add up all your financial assets such as your checking, savings, retirement, and brokerage accounts. Add in your home and car. Then subtract all your debts; car note, mortgage, and credit card debt. The number that remains is your net worth. This baseline net worth number is the best way to determine whether you’re moving forward financially or not. And if the number is negative, use that information to inspire you to pay off your debt and start saving and investing more. The easiest way to keep track of both your net worth and your finances is with portfolio management software.
3. Simplify Your Financial Life and Automate Your Investing
A stellar way to grow your wealth and simplify your financial life is through the magic of automation. Quite simply, this means that you set up a withdrawal from your paycheck or bank account to have money automatically transferred into a savings or investment account. For investing, choose a robo-advisor such as Betterment or M1 Finance. Open an account and set up a transfer from your bank account into the platform. The robo-advisor will help you create an investment portfolio and then manage it for you.
4. Simplify Your Financial Life and Save for Retirement
Even if retirement is decades away, if you start today you’ll ensure a comfortable tomorrow. The easiest way to save for retirement is through your employer’s 401(k) or 403(b) plan. Allocate 10% or more of your salary into the plan. Then choose a target date fund or a few stock and bond index funds for your investment dollars. Increase your contribution every time you get a raise and your retirement is set.
5. Simplify Your Financial Life and Autopay Your Bills
Set up autopay for your regular bills; rent, credit card, utilities, and more. That way, you save time every month and you’re never at risk for missing a payment. One caveat, don’t set it and forget it forever! Make sure to check the bills for accuracy. If the dollar amount of the bill appears in line with the amount you expect to pay, then you’re ok. Keep your eye out for fraudulent charges on your credit card as hackers have a way of making small charges.
6. Simplify Your Financial Life and Limit Your Number of Credit Cards
One or two credit cards is enough. If you have a bank debit card, you only need one credit card. I love the double cash back Citibank Visa. I charge a lot and then pay the bill off monthly. So, with 2% cash back, I’m only paying $98 for every $100 I spend. But, if you’re not adept at paying off your credit card in full every month, then stick to cash or a debit card.
7. Simplify Your Financial Life With Perfect Budgeting
Many years ago, I read a personal finance book by legend Jane Bryant Quinn. In that book, she offered the perfect budgeting solution. First, auto deposit all of your savings and investing (as described above) into savings, investing, and retirement accounts. Then, whatever money you have left is yours to spend. Of course, if you want a more detailed budget, there are countless ways to do so.
8. Simplify Your Financial Life and Consolidate Accounts
If you’re like me, over the years you open multiple accounts. There might be a CD promo, so you open a new account. Or, you like Vanguard index funds, so you open a Vanguard investment account. Then there are the jobs you’ve had, each with its own 401(k) program. To simplify your financial life, consolidate your accounts. Close the duplicates and roll over the old 401(k) accounts into one self-directed IRA account. This step keeps your financial life organized and tidy.
9. Simplify Your Financial Life and Check Investment Accounts Infrequently
The best investors trade the least frequently. With volatile investment markets, you might be tempted to check your accounts frequently. After the DOW drops, it’s natural to want to check the damage to your own portfolio. Don’t do it! If you check your investments too frequently, you might be tempted to panic and sell out of fear of loss. The research is clear that the best investors set up an investment portfolio in line with their risk level and stick with it through the ups and downs of the market. Once your investments are set up and your financial life is on track, there’s no need to check your investments more than several times per year.
Barbara A. Friedberg, MBA, MS is a veteran portfolio manager, expert investor, and former university finance adjunct professor. She is the author of Personal Finance: An Encyclopedia of Modern Money Management, How to Get Rich and Invest and Beat the Pros. Friedberg’s websites include the fintech site Robo-Advisor Pros.com and Barbara Friedberg Personal Finance.com. Her work has been featured in U.S. News & World Report, Yahoo! Finance, Investopedia, GoBankingRates, and many more publications.