22 May 2020 4 Things That Will Dramatically Simplify Your Finances (and Your Life)
“Our life is frittered away by detail… simplify, simplify.” – Henry David Thoreau
Thoreau was spot on. Especially when it comes to our finances. If we’re not careful, it’s easy for the daily routine of our personal finances to steal a lot more of our precious time than necessary and become a burden rather than a blessing. If you find yourself spending more time than you’d like paying bills, if you’ve recently missed a payment or if you feel a little overwhelmed by the number of accounts and passwords you have, take heart. Here are four relatively simple moves you can make that will allow you to take back control of the day to day of managing your personal finances.
The world of personal finance can be complex. These days it easy to have a multitude of accounts. There seems to be a different type of account for every purpose imaginable and sometimes, as in a job change, it’s just easier to open a new account without taking any action on the old one. I’ve done the work to consolidate my family’s finances and Crystal and I still have 11 different accounts. A checking account, a savings account, a brokerage account, a 401(k), two Roth IRAs, two traditional IRAs, two 529 accounts and a health savings account. Yes, we could reduce our number of accounts by rolling my traditional IRA into my 401(k) and using just one 529 account for both kids but this isn’t a contest. It’s about making things easy to understand and keep track of while also optimizing for time, costs, interest rates, tax savings and flexibility.
And remember it’s not just the number of accounts, it’s where they’re held. You might have a 401(k) at your current and previous employer, a traditional IRA at Fidelity and a Roth IRA at Vanguard, and bank accounts at two or three different banks.
There are two steps to the consolidation process. Determining if it makes sense to continue to keep an account open or have duplicate accounts and figuring out if it is held at the proper institution. Do you need to have two different traditional IRAs? Is there a benefit to leaving your old 401(k) with your previous employer? Do you need to have a brokerage account with two different companies? Sometimes you may find that the answer is yes but often you’ll find that some consolidation is both possible and beneficial. If that’s the case, don’t run out and start consolidating accounts without doing a thorough review of the potential costs and tax ramifications first. I might suggest getting some professional financial help as you walk through this process. We’d love to work with you on this, just let us know.
Automate your savings and bill pay.
There are tons of ways to automate your saving, investing and bill payments. Ideally, I’d have all our bills charged to our credit card to get the rewards points, however, not all service providers offer that as an option or they charge a high fee for the privilege. Plus, it seems like we have a new credit card issued to us every few months for security purposes. This means having to log in to any account currently associated with the old credit card to update it with the new card information. For those reasons, many of my family’s bills and savings amounts are automatically drafted directly from our checking account. These could be anything from our mortgage payment, our 529 contribution, my disability insurance premium to our power bill. I used to use our banks bill pay service, but I’ve found it easier to just have the payments or savings auto-drafted.
If there’s a downside to automating everything it’s that it can be easy to lose touch with what you’re paying and to whom. That’s why we couple our automation strategy with our use of YNAB budgeting software (you could also look at MX- offered free to Beacon clients – or Mint) which automatically downloads and categorizes all our transactions from our checking account and credit card – automatic or not. That way we can keep a handle on where our money is going even as everything is automated. I didn’t have to take any action last month to save to our brokerage account, pay our power bill, our water bill or our mortgage but I could log in to one place (YNAB) and tell you how much we paid and when.
There are obvious benefits to automating your bill pay and savings. You only spend a tiny fraction of the time it takes to do everything manually. You never miss a payment. Your savings take place before you can spend the money on something else. You never have that nagging feeling that you’ve missed something.
You can automate most of your bills and savings by logging in to the website for the different companies with which you do business. While you’re there, it probably makes sense to go ahead and sign up for paperless billing and electronic statements. If you do so, you’ll receive an email notification from your 401(k) provider, your bank, the power company, etc. instead of a paper statement any time a bill is coming due or a new statement is available. Personally, I find this to be much more convenient, easy to keep track of and friendly for the environment. If you’re used to receiving a bill and adding it to your stack to pay by check before the end of the month it will be a bit of adjustment, but I suspect you’ll appreciate the change once you get used to it.
With that said, I know a lot of you like to keep your paper statements for a period of time and there is some wisdom in that. In fact, here a great blog post about what financial documents you need to keep and for how long. Some of the documents listed in the blog will need to be in paper form, like your birth certificate, but others, like your year-end bank statement, will still allow you to go paperless by simply saving the documents to a file on your computer or in the cloud.
Protect and organize your passwords
Acting on some of these tips may mean having more of an online presence than you’ve had in the past. At a minimum you’ll need to log in to each of your accounts once to set them up for autopay and paperless delivery. As you begin to log in to your accounts, you’ll probably have one of three experiences. Logging in to each account will be challenging because you’ve forgotten many of your passwords and you have to reset each one. Logging in will be a very simple process because all your passwords are the same for every account. Logging in to each account will be a very simple process because last year you decided to begin using a password manager.
You do want this to be simple but, in this age of internet security breaches and website hacks, using your pets name or you’re the name of your favorite grandson as the password for all your accounts no longer safe. Click here to see if your go to password is one of the World’s Worst 100 Passwords! Ideally, you’d have a different, complex password for each account that you change somewhat regularly. That gets challenging when you consider that the average person has 130 different accounts they log in to. That’s why I, professionally and personally, started using Dashlane for my password manager a few years ago.
A good password manager, like 1Password or LastPass, creates strong, unique passwords for all of your accounts. That way, if one of your passwords gets caught up in a data breach, criminals won’t have access to the rest of your online accounts. The really good ones sync across desktop and mobile and have autocomplete powers. That way, instead of having to memorize (or write down) dozens of long and complex passwords, you just have to remember one master key.
It takes a little while to set up and get used to using a password manager but now that I’ve used one for a while I really love it. I know my family’s login information is secure and I never have to fumble around for a password when I need it quickly. Here’s a Brief that Sam wrote on Beacon’s decision to begin using Dashlane.
If there’s anything we can do to help with these ideas, or any other money matter, please let us know. In the words of Ferris Bueller, “life moves pretty fast. If you don’t stop and look around once in a while, you could miss it.” Don’t let the minutiae of personal finance keep you from stopping and looking around once in a while.