Simplifying Your Financial Life (8 comments)
Many of us, do not have enough savings, and sometimes, we have too many accounts, banks, credit cards, it gets overwhelming and confusing, not to mention hard to keep track of it. How to get a sanity? We can start by starting a process of simplifying financial life.
You can not focus on other aspects of your life, if your financial life is not in balance. Many of us are living, doing okay surviving, paying bills, adjusting here and there however, if we lost one or both jobs, most of us are just month away from losing it all. Americans are worst in terms of saving rate compare to any other nation.
Money is not more important than health or family in our life, but we let it get out of control, it can cause a problems in other aspects of our lives, such as health, family, social and worse our self worth. Here are a few ways to get handle on it.
Step 1: Create a spending plan.
List all of your bills you have to pay and list all type of income. If you list incoming and outgoing money for past 3-4 months. (Go back to your bank accounts, credit cards statement, checks cashed to get all the numbers) After doing that, you will have a general idea where most of your money is going.
Step 2: Write every single expense
Many times, we wonder where is our money going? You may think I am not spending that much, it can not be. The best way to know where your money is going is to write each and every expenses down, each day at the end of the day, keep receipts and write down each cash expenditures, including 50 cents you may use in vending machine. We have been doing this for years now and it helps to know where our each penny is going. It is matter of comfort level for people to either continue this or do it for a few months to know your average spending amount.
Step 3: Use cash more often
We have an envelope system, where each month we have allocated fixed amount of cash, for groceries, eating out etc. When we are out of that budget, we can not spend on that category that month. It encourages us to stay within budget when we are shopping. It was not easy in the beginning as I was so used to having credit card to charge whatever I wanted and needed.
We still use our credit cards occasionally for few things and other items but it is not like past, where we charged every single thing on it.
Step 4: Consolidate services
Some time, consolidating some services like internet, phone, cell phone, cable in to one, saves you a bundle. Just call your provider and ask for details, sometimes dropping some services you do not use can save you a bunch of cash, such as cable channels you usually do not see, call forwarding feature you may not use and so on.
Step 5: Minimize banks accounts
One of my friend is a “Rate chaser”, meaning he will open a bank account whenever some bank offers a better interest rates, while there is nothing wrong with getting more money in interest, problem is most of those rates are teaser rates (lasting 6 months or so) and second is you may end up having 23 banks to keep track of. That can create a headache. If you must do this, close some accounts after rate goes below you would get on your credit union bank.
Plan using ING or credit union, and use several savings account under it, such as emergency fund, vacation fund, new car fund, house down payment fund, Christmas funds etc., This way, you may have money saved in different accounts but only a couple of banks on your review watch.
6. Minimize your retirement fund accounts
Here I do not mean minimize savings, just minimize number of accounts and banks for retirement savings. Similar as above, many of have 401K in each companies that we worked for previously, sitting in individual account. If you are in same situation, consolidate your all 401K into your new company’s 401K plan or better yet, convert into IRA or ROTH IRA plan. Good thing about IRA is you will have more control over which funds to invest in and similarly you have a fewer accounts to keep track of.
7. Eat at home or bring your lunch at office/work
Zenguy and I both are foodies and love to cook and eat out. Once upon a time, we used to spend $1000 a month on eating out, various places with wines and desserts. Oh it was good eating but not so good on our pocket. Now with 2 little ones, we are better off at home or family friendly restaurants, instead of 5 stars places we used to hang out in.
Even if you are single or have no kids, this will help you save. Let’s suppose you bring lunch from home 3 out of 5 work days, average of $10 for lunch with taxes and tips, will save you over $1500 per year. Imagine what you can do with that money instead!!
8. Pay bills online
Paying bills online now will save you a time and money on stamps. You can also schedule paying weeks in advance too. Most banks offer it free bill paying, if your bank does not, find out one that does. It has been a life saver for us. While maybe occasionally you may have to pay by check or post mail, still you can pay most bills online. It works well, if you are traveling also, as you can pre plan your bills payments or stop one.
9. Close unused bank accounts
Zenguy and I had a bank account from Chicago, after we moved from there to California many years ago, it had $2.56. We finally, got it around it close it. If you are like us, check around and close unused bank account you may have and forgotten about it.
10. Have money goals
Do not go and buy something because your friend, family or co-worker got it and you had to have it, and did not know until you just saw it. That is a recipe for debt. Buy what you need not life style of your peers. It is hard sometimes but if you see your goals, such as paying off credit card debt, or student loan or personal loan or mortage or save up for house, car, children, whatever it may be, visulize your goals. It will help you keep on your track of saving and spending less.
How do you simplify your finance? What works for you? I would like to hear your side of stories and suggestions.
Photo Source: amhpub.amherst.edu