Hopefully one of your goals for the new year includes getting a handle on your finances. The first step in doing so is simplification. That makes it easier to stick to a budget and pay off your debts. So what are some simplification steps you should consider? Forbes has an article called Four Ways to Simplify Your Finances in 2016. Here are their four tips, along with my comments about each of them:
How many checking and savings accounts do you have at different financial institutions? What about retirement accounts? It can be a pain to keep track of all of them.
They suggest, and I agree, that you should consolidate your checking and savings accounts down to one bank. It makes it so much easier. And if you are someone who likes to have separate savings accounts (eg: Christmas savings, vacation, etc.) check to see if your bank allows you to have sub-accounts.
Also, if you have various 401(k)’s at places you used to work, in addition to an IRA, roll all your 401(k)’s into your IRA. There are many reasons to do this (besides simplicity), but reducing the hassle of keeping track of various accounts and minimum distribution requirements at retirement is a good one. The only 401(k) you need to keep open is the one at your current employer so you can get matching contributions. But like they advise in the article, “have one IRA account to act as a holding tank, rolling in funds as you switch jobs.”
Pay Off Debt
If you have credit card debt, you may consider consolidating to one or two credit cards that have the lowest interest rates and the best rewards program. Use the debt snowball to pay off your debt.
To protect your credit score, don’t close the accounts as soon as they are paid off. Cut up the card so you won’t use them, though. But if you choose to close the accounts, close one, wait six months, then close another. Spreading it out does a lot less damage to your credit score, unlike a sudden reduction in available credit. And the damage is only temporary. I have closed credit card accounts using this approach several times with no lasting damage to my credit score.
The Forbes article recommends:
Automate everything: credit card payments, loan payments, monthly utilities, etc. Having your regular monthly payments automated will help you avoid penalties – as long as you have enough in the bank to cover the payment….If you are concerned that automating payments will result in less oversight, consider that most monthly expenses are similar from month to month. Many banks will also send you an email whenever an automated draft is requested from your account. If a credit card or utility payment is suddenly larger than normal, you can investigate.
I say: If you are comfortable doing this, go ahead and do it. While I, personally, am not comfortable giving companies access to my checking account, I have set up automatic bill pay from my checking account to the mortgage company for my mortgage payment. You can do that easily for any payments that are the same amount from month to month. For utilities and others that change amounts each month, they are usually due around the same time each month so set yourself a reminder, or set it up to be paid as soon as you receive the bill. You can set the payment date for when it is due.
It’s also a good idea to automate your savings. Set it up so money will automatically transfer from checking to savings every pay day. If you don’t see it, you won’t miss it, and it’s easier to build up savings.
Take Advantage of Technology
For better control of your finances, use free online tools like Mint. Use Outlook, iCal or Google calendar to remind you of non-automated payments, like quarterly tax payments. Or to remind you when discounts or promotional rates expire.
Go paperless for monthly bills, they are available online and it reduces the risk of identity theft. As a bonus you won’t have to sort and shred the bill you will never look at again and it helps the environment.
Hopefully these four ways give you ideas on how to simplify your finances, which make it easier to stick to your financial goals. Good luck and have a financially stress-free 2016!
For the full article from Forbes, with their comments about each tip, click here.