5 Ways to Simplify Personal Finances
Written by Preet Banerjee
Friday, June 1st, 2018
Our lives seem to move a mile a minute, and there's a never-ending list of things to keep on top of. Simplifying our lives can not only reduce stress, it can increase our bottom lines. Here are five steps to decluttering our financial lives.
1. Make your savings automatic
This tireless advice is so powerful. I use the following example regularly, but it bears repeating: imagine you didn't have your income taxes deducted from your paycheque before it got to your bank account, and imagine the Canada Revenue Agency asked instead for one big cheque at the end of the year. Many people would struggle to come up with the tax owing. The power of automation is clear. Now harness that power for your savings. Set up an automatic savings program to have small amounts regularly transferred from your chequing account to your savings account, and by the end of the year, you'll be surprised at how much you've been able to save.
2. Make your expenses automatic
Unopened mail can accumulate on our desks, and many of us miss a bill payment due date simply because we procrastinate and ultimately forget. That can incur interest penalties, and in some cases negatively affect our credit scores. If you have regular bills that show up like clockwork, you can set up recurring bill payments too. You won't have to worry about those deadlines ever again.
3. Consolidate your accounts
Some people bank with three or more financial institutions, have credit cards at three others, and might have a spouse or partner with their own list of financial providers they deal with. Few people need more than two credit cards, and two banking relationships. Whatever your particular situation is, figure out what arrangements make sense and cut out the ones you don't actually use, or need to use. It's easier to get a sense of your finances when you don't have to look in 10 different places.
4. Use a portfolio of index-based funds when investing for the long term
This strategy, often referred to as "couch potato investing" requires only a few minutes of maintenance per year, and in the long run, you have the potential to outperform the majority of investors out there. A couch potato portfolio ticks off all the boxes of a prudent portfolio: it's diversified across the globe, between stocks and bonds, and can be matched to your risk profile. You won't have to spend hours pouring through research reports, analyzing financial statements, or staying on top of the daily business news. Index-based funds simply track the major markets' overall performance at a lower cost (time- and money-wise) rather than trying to beat them. It doesn't get more simplified than that.
5. Get a simple filing system for financial documents
The best way to prevent getting stressed out by accumulated piles of bills, pay stubs, and other financial paperwork is to file them away into categories in a filing cabinet. Get some folders, label them, and sort everything by category. You can also file your warranties for appliances and electronics, insurance policies, and any other financial documents you need.
These five steps are easy to implement, and will simplify your finances in short order.