10 Tips To Simplify Your Personal Finance
The honest truth is that personal finance and investing doesn’t need to be complicated. For the majority of us, we can reach our financial goals of financial independence and comfortable retirement with a very simple money strategy. So in this post I’m going to share with you 10 tips to really simplify your personal finance and investing so you can spend more time on things that really matter.
01 - One Bank
Keep all your checking, savings and banking needs all with one bank. By using one bank, not only do we only need to keep track of one login, but we can also easily consolidate all our financial accounts in one place. And this really simplifies things like bill payment, transaction tracking and even budgeting since it’s all in one place.
I know of people who like to open up multiple bank accounts because they are most often chasing better and better offers; higher savings rate, bonus for opening up a new checking account or free gifts with new accounts. Now if this is your cup of tea, no judgment here.
Just know that you are making a trade off when you have all these multiple bank accounts; the need to keep track of multiple logins, the need to stay on top of different terms with each account and don't forget all the paperwork that comes with each account and bank. All this adds up to time. And time in my books, that could be spent on frankly more interesting stuff than micromanaging multiple bank accounts.
02 - Automate Bill Payment
If you aren’t using auto-pay to pay all your bills, you are really not leveraging tools that can save you tremendous amounts of time and stress. Putting all of your bills, including credit cards, utilities, insurance, loans, and even mortgage on autopilot can save you significant time and hassle each month. Plus, you will never have to worry about late payments or late fees.
You can often set up automatic payments for your bills by going to the website of the service provider and inputting your bank account information. Because I love automation, one of my major pet peeves is whenever a business or an organization doesn’t have automatic payment. Most often I face this with either mom and pop shops or our local government. I detest the time I feel like I’m wasting whenever I’m paying our local water bill with a check. I mean we are living in the 21st century right?
03 - Go Paperless
A major culprit of personal finance-related headaches is paperwork. You may not even take the time to read through all of them but we keep them because we are afraid we might need it one day. And the existence of large amounts of paperwork can be stressful all by itself. And to be honest, keeping track of all the many physical documents; receipts, investment reports, bank statements, tax returns is almost impossible.
These days most banks, credit card companies and investment firms allow you to opt-in to a paperless experience instead. You either receive statements via email or have access to them when you log into your account. And another nice aspect with going paperless is that given the search function, you can most often find the document you are looking for much quicker online than searching through physical drawers.
04 - Digitize Everything
If you really want to simplify your personal finance even more, you could even set up a digitized archive of your important information and files on your computer or the cloud. This way you never have to spend hours searching through file cabinets and desk drawers looking for the one file you know you placed there 5 years ago. Most phones have free scanning apps that you can connect to a cloud service.
I personally use Google Drive for everything and my iphone’s note app allows me to scan and directly send scanned files to my designated google drive folder with just a couple touches. Whenever you get a paper receipt or a paper document, get in the habit of scanning and uploading it to the cloud. You can just simply create a folder labeled ‘receipt’ and dump everything in there.
As long as you are labeling it correctly when uploading, with the vendor and date, the search function allows you to find pretty much everything in a matter of seconds. Again we are living in the 21st century, so leverage the tools available to you to simplify your life.
05 - One Insurance Company
Insurance can be a complicated and overwhelming topic. There are many different types of insurance, including health insurance, life insurance, auto insurance, homeowners insurance, etc. And there are also so many different providers that you could use for these different types of insurances - from large companies like State Farm to smaller, specialized insurance providers.
However, one of the best ways to simplify our personal finance and investing is to use just one company for all our different types of insurance coverage. This will make managing your insurance portfolio much easier and less confusing. In addition, most often you can get a discount for consolidating all your insurance under one roof. If you aren’t getting one, make sure to ask. Most often the insurance company will make concessions if they feel like they are going to lose your business over fees.
06 - One Investment Firm
In this channel I talk about a lot of different investment options and different investment firms. Total Stock market index funds. S&P 500 index funds. Total international stock market index fund. Funds with Vanguard. Funds with Fidelity. Fund with Charles Schwab. And I’m not even considering the countless number of new trading platforms.
The options could feel overwhelming and it could feel like you need multiple accounts, with multiple funds at all these different investment firms. However, the truth is that the difference in many of these options are actually quite minimal.
Yes, does Fidelity Total Market Index Fund, FSKAX have a slightly lower expense ratio than the Vanguard Total Stock Market Index Fund, VTSAX?
But what is going to make you rich and wealthy in the long run isn’t that you chose one over the other. It is after you chose one, and you stick with it for a long period of time, investing regularly. Over a long period of time the difference mostly washes themselves out.
So my recommendation is that you pick one investment firm to do all your investment business with and stick with them for the long run. Don’t have your Roth IRA with one firm and then your brokerage account with another firm. Try to keep them all under the same umbrella. This will really simplify your investment life and will allow you to manage your investment portfolio more easily.
07 - Automate Investing
With all investment firms, you should be able to automate how much you want to invest each month to each account when you connect them to your bank account. This typically consists of two transactions: transfer of money from your checking account into your brokerage account, followed by an automatic purchase of shares. Set aside a specific amount each month to be invested in each of your accounts; your Roth IRA, your taxable account and any other account you have. Then forget about it.
The key benefit of automating your investing is that it will help you stick to the plan and invest regularly. Take the human element out. Don’t rely on your willpower to manually do this on a monthly basis. Just like how we can’t resist free donuts, we will all fail. So take some time today to review all of your investment accounts and set up automatic investments into each account. And then don’t think about it again. Check in once in a while just to be surprised at the growth of your accounts.
08 - Automatically Reinvest Dividends
When setting up your investment accounts, turn on automatic reinvestment of your index funds or ETFs. Without automatic reinvestment, dividends will accumulate as cash in your settlement account. Some people don’t like automatic re-investment because it creates a lot of tiny tax lots, but brokerages will keep track of these tiny lots for you when it comes time to do your taxes. And again, in the spirit of keeping things simple, you are removing just one more thing you will need to do each month. More automation equals simpler life.
09 - Use 3-Fund or 2-Fund Portfolio Strategy
As you can tell I’m a big fan of simplifying your investments. Thus some of the advice I share in this channel at times might not be the most financially optimal, yet I follow it and share it because I feel in the long run simplicity trumps a lot of things.
In the fable Tortoise and the Hair, the tortoise wasn’t fast but had a very simple strategy. Stay on the path and just keep going.
I feel many people spend too much time agonizing over which investments to purchase and how to structure their investment portfolio. And I’m not even talking about individual stocks. But over simple low cost index funds. My recommendation is always this, pick one that best works for you and stick with it for the long run.
And when it comes to constructing your investment portfolio, pick either the 3-fund or even simpler 2-fund strategy and run with it. There is no such thing as a perfect investment portfolio. Just the one that works for you and the one you stick with for a long period of time.
10 - Use Account Aggregator
Despite all our efforts to simplify our finances, we will still have multiple accounts regardless. Even if I do all my business with one bank, I’ll likely have multiple accounts with them. And even if you do your investments with one firm, you will still have multiple accounts; 401k, Roth IRA, HSA, etc.
So a way to simplify your personal finance if you have multiple accounts is to use a financial account aggregator. The most popular one is Mint for budgeting, but an excellent one for organizing your investments is Personal Capital. It helps you track all of your investments in one place and the aggregator is completely free.
They will likely call you to ask if you would like help managing and optimizing your investments, but those services are not necessary for most do-it-yourself investors.
