How to Simplify Your Financial Life

How to Simplify Your Financial Life

When it comes to personal finances, simplicity is the key to success. What can you do to simplify your financial life?

Never in the history of the world have we been faced with so many options that compete for our time, attention and money. The options seem endless. In the U.S. there are over 631,000 financial brokers, 3,700 securities firms, 6,799 FDIC insured commercial banks and hundreds of personal finance apps that are changing daily.

All of these options are available at the touch of a button or an app. Some of these services have simplified finances for many, but the 21st century with its gazillion options has also made the century the most complex. The easiest of times and yet the most complex of times.

In the book, Your Money or Your Life, Vicki Robins published a happiness index graph showing that happiness actually begins to decrease at a certain point of excess spending. Partly because life becomes too complex, cluttered and not simple enough.

When we over-purchase we risk being “time-consumed” with too many things.

“A rich man doesn’t own his things, rather his things begin to own him.”

Lynn G. Robins

How to Simplify Your Financial Life

So, what can you start doing today to start managing your personal finances better and simplify your financial life?

The following are six steps to help you simplify your financial life:

1. More money isn’t always the answer

Many people think, “If I had more money, my financial problems would be solved.” This may prove to be true under some circumstances, however, this is typically not the case.

More money will not simplify your financial life, managing what you have, will.

If you’re the average American, you work 40 hours a week and spend less than 40 seconds managing your paycheck. More money not only doesn’t make your life easier, but it can often complicate it.

“Mo money, mo problems.”

The Notorious B.I.G.

Focus on activities that are going to bring in more income to help you reach your goals. But, understand that more money alone will not solve financial problems.

According to the Pareto Principle, personal finance is 80% behavior and 20% numbers. It’s about behavior and spending habits not how much money you make.

2. Eliminate debt

Each time you eliminate debt, you are simplifying one part of your financial life. When you owe money to multiple people it can cause a significant amount of stress.

This is one of the best ways to simplify your financial life and bring peace of mind into your life. Eliminating your debt is not going to happen overnight, but creating a plan and making small consistent steps towards being debt-free will get you there.

This starts by creating clear goals that will help you tackle your debt.

3. Simplify banking

Most people are often confused about their finances and feel taken advantage of when it comes to their bank, insurance, investments and credit cards, which are always changing. Luckily, there are banks that are trying to make things easier and more transparent.

Look at your bank as the most basic root of your finances, from which everything else flows from. It may make sense for you to consolidate your different banks into one bank. As well as consolidate all of your checking and savings accounts into one checking and one saving. Often banks charge fees for extra accounts.

However, if your bank does not charge fees, multiple savings accounts can be helpful for different financial goals. I have five savings accounts for different purposes which makes reaching my goals easier. I know what the money in that account is going to be used for.

4. Income and then expenses

“You can’t manage what you don’t measure.”

Do you make more than you spend? Do you spend more than you make? Are you unsure? Life can get busy and complicated but if you want to improve and make your financial life simpler, you need an understanding of where your money is going.

Do you look at your bank accounts or credit card statement at the end of the month and say, “where did all of my money go?” If yes, it’s because you’re not budgeting and tracking your expenses.

I’m not going to spend any time talking about how to budget (you can learn more here) but that is a necessity. It’s as simple as looking at what you have coming in and what’s going out. You can make it as complex as you would like but it doesn’t need to be.

5. Pay yourself first

The one simple thing that you could do each time you get paid that will set you on the path towards financial freedom, is deciding a percentage of your paycheck that you are going to pay yourself first. Whether that be 5% or 30%. Transfer the money to your savings accounts before you pay any bills or expenses.

You may be the type of person who is frugal and saves quite a bit of money after you pay your expenses. But you also may not have as many expenses at this point in your life. What happens if one month your tires blow out, or your pet takes a trip to the vet? These events, for most people, mean they don’t save money that month.

You are usually the last person to get paid after taxes, bills, and variable expenses, but get in the habit of paying yourself first and investing in your future consistently every time you get paid. More important than the amount you save is the habit.

Divide your money every time you get paid into a savings account. If you’re a saver or a spender you’ll enjoy watching your accounts grow.

6. Automate everything but actively track it

Automate as much as you can. Automate your savings, your bills, your investments, even your income and elect to receive electronic documents. Along with automating your finances, try using budgeting and expense tracking software like Mint or Personal Capital to stay on top of all of your accounts in one place. You’ll only have to log into one place versus five others to try and understand where you are. Plus, they give you graphs and visuals to easily track bills, investments, and your net worth!

Start Simplifying Your Financial Life

There are a lot of tools and resources available. Implementing even a few will go a long way in helping you simplify your financial life.

Now, I’d love to hear from you. What have you done to simplify your financial life?

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