10 Ways To Organize and Simplify Your Finances

by Silicon Valley Blogger on 2007-04-3012

There’s a lot we can do to simplify our lives and our finances. When we go through the process of decluttering and spring cleaning, we see how very easily it is for us to create chaos out of our finances as time goes by and we begin to accumulate accounts, loans, debt and assets along with growing a family, moving to a bigger house, owning more cars and other stuff. The list goes on.

So I dug up a few pointers on how to make things easier.

10 Steps To Simplifying Your Finances

#1 List all your accounts down.
Have a file or document somewhere that lists everything you own. This is basically an inventory of your accounts which will give you the big picture. Most people already have this set up in their money management application’s store or financial software’s database. But that list will grow, so it’s a good thing to ensure you have it safely captured in some easily accessible medium, especially for the benefit of your spouse or anyone else who may have a stake in it now or some day.

#2 Determine if you can coalesce redundant accounts together.
Take a good look at your list. Does it seem like a lot? For example, if you were my age, you would probably have worked at many companies at this point — which means, a bunch of scattered 401K accounts lying around with small deposits. If so, think about merging them into a single Rollover IRA or roll them into your current 401K plan. How about all those checking or savings accounts at various banks? You may not realize that by chasing a lot of free offers and tempting deals out there, you may end up opening more accounts than you bargained for.

clear piggy bank

#3 Beware of over-diversification: merge like investments within and across favored mutual fund companies.
Is there such a thing as owning too many funds? Certainly! If you have this plight, then you are in danger of over-diversifying. Consider narrowing down your mutual fund companies to those you favor most and maybe limit your funds to this smaller group of companies. Or you can simply think about merging similar accounts or funds that belong to the same institutions. You can use a portfolio X-Ray feature like Morningstar’s to detect overlaps in your investments and help you make the right decisions. I’ve hesitated jumping into this process for fear that I will end up incurring capital gains taxes when I sell to simplify, but weak performers should make the exercise easier for me.

#4 Close zero balance accounts if they exist.
Again, you may want to think about closing accounts with zero balances whether it be in a bank, brokerage house or even a credit card company. There’s some consequence in closing credit card accounts, so you need to think about the tradeoff here and what simplicity is worth to you.

#5 Trim down the number of credit cards you have.
Closing down your credit cards willy nilly can negatively impact your credit score, particularly for those credit accounts you’ve had longest. The best compromise is to close those unused cards that are newer.

#6 Consider consolidation strategies for debt and credit cards.
I’m not a major expert in debt or credit card consolidation, but you may want to look into this to simplify your payment structure as well as get better rates in the process. Here’s some straightforward advice on consolidating debt and credit cards.

#7 Sign up for bill pay services online.
By going online, you won’t be using envelopes, stamps and checks as much as you did in the past. Plus, you’re able to keep track of your bills more easily as many institutions provide a lot of supporting tools like reports and alerts if you sign up with your online service. Need more convincing?

#8 Pay your bills automatically.
The set up is a bit of a pain in some cases but should be worth the time savings you get for doing auto bill pay. I haven’t personally gone 100% this way yet so this is one thing I need to address for my household. I have some misgivings about this and am not completely comfortable with the idea yet but it’s growing on me.

#9 Get your various insurance policies from the same company.
Most likely, you’ll get a break in premium costs if you do so. When we moved all our policies to one insurance company, we happily received some reasonable discounts.

#10 Toss the paper trail and computerize all your financial activities.
Everyone knows how great it is to work without having to shuffle paper, maintain accordion folders or handle filing on a regular basis. Enough said.

One caveat though: simplicity is the antithesis of diversification. When I decide to narrow down accounts, funds, policies and such into the hands of fewer companies, then I’m letting go of the benefit of diversifying across companies. This would only be an issue if you’re concerned about how trustworthy these companies are. Case in point: you don’t want to face a debacle akin to the “Enron” scenario. Hence, make sure you only deal with reputable financial institutions and companies by doing the research to support your choices.

Nevertheless, I will admit that I can definitely benefit from this very advice. There’s much I can personally do to improve the state of our finances in terms of getting them better organized. As with everyone else, it’s all about taking the time to do it and being diligent about making these changes. I’m still a ways away from the ideal set up but I’ll chip at it a little at a time.

Copyright © 2007 The Digerati Life. All Rights Reserved.

{ 6 comments… read them below or add one }

Sun May 1, 2007 at 3:10 pm

I didn’t list the a dozen mutual funds I own in the post, because, well, I feel it would be too much to add to the list. Actually, besides those bank accounts and credit cards, I feel I really need to do some work on my the funds I have. Overdiversification? Yes, I am sure there are some overlaps among the funds. However, unlike a credit card, selling a mutual fund can actually cost me money since I have owned most of them for nearly five years and there are quite some capital gains. This is the main reason that I am a little reluctant to sell a fund. Besides, all the funds seem to perform quite well, making the decision even harder to make :((

Gina May 2, 2007 at 12:39 am

Those are helpful tips. The online bill is a good way to stay up to dated.
It’s indeed better to pay bills automatically to avoid spending the money for the bills on something else.

Helen May 2, 2007 at 6:00 pm

I agree with paying bills automatically. This way, you don’t have to waste time paying for it and you got to use your money wisely by paying your bills first.

Nancy May 3, 2007 at 7:06 pm

I agree with your tips. In this modern times we surely don’t need to bother ourselves with the use of papers and folders. Going online is enough to sovle these problems.

Sham May 4, 2007 at 1:26 am

Some very practicle and useful tips.
I like the #1 the best. List all. I have several pieces of paper in a little file. I know that sounds old fasion! I will make list 🙂

Thank you

Silicon Valley Blogger May 4, 2007 at 8:11 am

I’m glad that even the simplest steps are going to help out! I like it when the easy and small tasks provide the biggest value.

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