Finances can seem complicated until you get to know how they work. When you simplify your finances, it’s a lot easier to stay organized, make financial decisions, and stay on top of your personal financial life.
Finding ways to simplify finances can be freeing for both your mind and your pocketbook. Here are some simple ways to make it happen.
7 Ways to Simplify Finances
It’s not as hard as you think to simplify how you look at your finances every day. It starts with a few good habits and some simple steps to get you going. Once you start, you’ll wonder why you ever lived with a complicated financial situation before.
1. Set intentional money goals
Don’t get in the habit of setting goals just to set goals. You’ll end up with a long list of unattainable goals and quickly start feeling defeated. Instead, set fewer goals but make them meaningful. The more goals you set, the more scattered you’ll feel and the less likely you will achieve those goals.
Create your small list and prioritize them, choosing the top two or three that not only mean the most to you but will have the most impact on your financial life.
2. Go digital
Don’t get caught in a paper storm. It’s much easier to lose pieces of paper than it is to misplace a digital document. Most creditors, banks, and investment firms offer a paperless option. Opt into it and ditch the paper nightmare.
Not only is it easier to stay organized, but you’ll have everything in one place. You may even be able to automatically upload specific documents to your accounting systems, such as Quicken. Going paperless can save you time and stress and is one of the best ways to simplify your finances.
3. Add automation
Work smarter, not harder, as they say. Today you can put just about anything on automation, including your bills, savings accounts, and even investment contributions. Try to make everything so that you don’t have to think about it.
Most creditors offer automatic bill pay. Some even offer rate discounts for setting it up. Not only do you save time, but money too – it’s a win-win.
Additionally, most banks and credit unions provide automatic contribution plans. You set the amount and frequency, and they do the rest. It stops you from spending before you save or invest because it’s done for you. Think of it like a non-negotiable bill that you must pay each month.
4. Invest in funds vs individual stocks
If you’re investing, consider investing in funds rather than individual stocks.
There’s less to fuss with, so you minimize the commissions you pay for buying and selling frequently. Funds are also much easier to set up automatic contribution plans, so you’re always contributing and growing your investment.
5. Eliminate accounts & subscriptions
Chances are, if you sort through your accounts and subscriptions, you’ll find plenty you no longer need. We’re all guilty of signing up for free trial subscriptions and then forgetting to cancel them. They are called ‘ghost subscriptions’ because you have them but don’t realize it even if you’re paying for them. They become just another charge on your credit card each month.
The same is true of accounts you don’t need. Simplifying finances is as simple as consolidating to one credit card and one bank account for each need (one checking, one saving, etc.). Don’t overcomplicate it. You’ll end up losing track of which accounts have fees and how you work around them.
If you have too many credit cards, you end up paying much more interest than necessary. Instead, consolidate everything to one credit card, so you know the balance, APR, and payment due date. You’re also more likely to make smarter purchase decisions when you only have one credit card.
6. Pay down debt to simplify finances
Debt is burdensome. It weighs you down and keeps you up at night. Today, the average household has $155,622 in debt (including mortgages), which is over 6% more than a year ago. Work on paying your debt down and eventually off for greater financial peace.
This won’t happen overnight, but you can reduce your debt with a solid plan in place. A good option is to use the debt snowball method. It’s simple to do with these steps:
- Order your debts from smallest to largest balance. Don’t worry about APRs or anything else. Just focus on the balance.
- Budget for the minimum payment for each debt and pay it each month.
- Figure out how much extra money you have to pay toward your debt each month and make a line item for it in your budget.
- Pay the ‘extra’ money you can afford toward your debt in addition to the minimum payment, but only to the first debt in line (the smallest debt).
- Keep doing this until you’ve paid the debt off in full.
- Take the full amount you paid to the first debt (minimum payment plus the extra payment) and add it to the minimum payment of the next debt in line.
- Keep doing this until you’ve created a snowball and eliminated your debt.
7. Keep emergency funds out of reach
Emergencies are stressful enough. If your finances become a mess along with it, you’ll have even more stress. Instead, get your finances in order and keep your emergency fund separate from your other funds.
Make your emergency fund inaccessible so you can’t intermingle it easily with other funds. When it’s out of sight out of mind, you’re less likely to use it until you absolutely need it. Your emergency fund should cover three to six months of expenses so you can figure out your next steps without worrying about money.
Final thoughts—Next steps to simplify money
Now is a great time if you’ve always wanted to simplify finances in your life. Start by reducing the paper statements you receive and cutting back on excessive accounts. Then, slowly work on simplifying your finances by cutting back on subscriptions, automating as much as possible, and paying down debt.
When you’ve achieved simplified finances, you’ll feel lighter, more focused, and more empowered in your financial decisions.
