Ways to Simplify your personal finances

With my family of four boys, things seem to pile on top of each other endlessly.  Does this happen to you too?  Does life seems to get more and more complicated?  We have more options and choices than ever.  Do you sometimes struggle with finding things on the internet?  What about picking from 250 TV channels?  Is is difficult just to decide where to go for dinner?

We live in a world that likes to complicate things – more stuff, more clutter, more confusion! This is not good.  If you think about it, our brains have a limited capacity. We can only do so much, and we can only handle so much.

With increasing complexity and confusion, there’s something to be said about simplicity.  After all isn’t simple better? When it comes to money and personal finance, I am a strong advocate for simplicity.

Over at Canadian Finance Blog, Alan Schram wrote about minimalism.  For me it’s not as much about minimalism but more about simplification.  Here’s some things to look at simplifying:

Simplify your banking

Everyone needs a bank account.  The problem is we have taken this too far.  Most people have multiple bank accounts.  They have a ‘his’ account, a ‘her’ account, a ‘joint’ account, a ‘just in case’ account, a ‘travel account, a ‘reno’ account and some even have a ‘I don’t want my spouse to know about it’ account.

If you think about it, the more accounts you have, the harder it is to keep track of everything.  My wife and I have 2 high interest bank accounts.  One for ‘us’ and the other for the business.  That’s it and I like it that way because it keeps things really simple.

Related article:  How much are you earning in your bank account?

I know an 80 year old with 11 bank accounts and when I asked him why he has 11 bank accounts, he basically said “I don’t trust anybody these days.”

Simplify your investments

When it comes to investing, diversification is a common mantra.  While diversification makes sense when it comes to asset classes, I’m not sure spreading your money to too many different accounts makes senses.  Again, there’s something to be said about simplification or consolidation.

Related article:  Proper diversification using correlation charts

Lucy has $100,000 in RRSPs spread out among 4 different financial institutions.  She is not happy with any of the companies not just because of performance but because she feels no one is interested in servicing her accounts?

The problem is the financial industry is a scaleable industry.  Whether you like it or not, the more money you have, the more interesting your account is to a financial advisor or institution.  By consolidating her RRSP into one account, she could look at a Self-Directed RRSP and streamline the portfolio overall.

Simplify your debts

Obviously having a lot of debt can be stressful.  It can also be really problematic having many different debts because it means many different payments, more time, more statements, and more headaches.

Deb consolidation is not only a great strategy to lower interest cost but it can also be a great strategy to simplify your debts.

Related article: Time to get rid of debt

Simplify your documents

If you look at my desk from time to time, it gets pretty messy and needs to be cleaned and reorganized once in a while.  When it happens, it always feels so good.

Organizing your financial documents from time to time is no different.  Every month, I try to take an hour or two to organize all the bills and statements into my financial binders.  At that time, I throw away stuff that does not need to be kept which is another form of simplification.  Having a system for your financial documents is really important and the simpler the better.

Related article:  Estate planning starts with getting organized 

My five cents

So here you have 4 ways to simplify your personal finances.  Obviously there’s many more ways to simplify.  What are some other things to simplify?

Written by Jim Yih

Jim Yih is a Fee Only Advisor, Best Selling Author, and Financial Speaker on wealth, retirement and personal finance. Currently, Jim specializes in putting Financial Education programs into the workplace.For more information you can follow him on Twitter @JimYih or visit his other websites Group Benefits Online and Advisor Think Box.

4 Responses to Ways to Simplify your personal finances

  1. I’ve been trying to simplify as well, we no longer use the “high interest” saving accounts at the bank, just keeping the balance in chequing until we use it (at the end of the month, I calculate the funds required for the next month plus a buffer and transfer the rest either to investments or against the mortgage)

    The real pain is that all registered accounts need to be separate, so that my spouse and I each have a current DC pension account, a LIRA (from a previous employer pension plan) an RRSP, a TFSA, plus one RESP and normal bank accounts.

  2. The 80 years old one you have mentioned is very smart. I would rather look for advise from him, not from you. I have 10 accounts at four different institutions and find it very convenient.

    • Ouch! That was a little harsh. If you are so wise, why are you bothering to read this blog??? I find Jim’s observations and approaches very helpful and I always look forward to reading his newest comments.

      Pity the poor soul(s) who will have to sort out your finances when the time comes you are no longer able to manage your own affairs. I suspect you won’t trust the folks taking over for you any more than the advisers you have now. And won’t that be fun.

      One of the challenges of having many accounts is ensuring the paper trail of deposits and withdrawals is up to date and accurate when the tax man cometh. Hope you’re keeping good records.

  3. Practical suggestions for a better financial life. Simplification is the Key to better control in personal finance. But today’s marketing mantra is complication. You have all complex financial products available in the market. Your success lies in identifying the ones which suit your needs. No doubt, those will be simple. Few bank accounts, few mutual fund folios, few credit cards etc. can simplify the financial life.

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