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Don’t Be Afraid of Finances – Just simplify them

One of the primary reasons why people don’t like managing their finances is because they find the task confusing and tedious – this is mainly because their personal finances are complicated. I find that people tend to complicate their finances when it’s not necessary to do so, they have bank accounts with several banks, their brokerages accounts are all over the place, their investments are overlapping, etc. If you find yourself in a financial maze, I suggest you take a couple of days or maybe a weekend to find the way out of the maze and simplify your finances. Once you have your finances simplified managing money will be much easier and not so mystifying.

How to Simplify?

1. Close Unnecessary Bank Accounts.

There really is no need for having more than just one checking account, if you have multiple banks accounts consider closing all but one. If you are married than you may have more than one bank account, the best option for married couples is to have one joint account to pay household expenses from and two individual accounts for each member. Reducing the number of active accounts will simplify budgeting and expense tracking.

2. Go Paperless

Most financial institutions and companies now offer paperless billing; I highly recommend you take advantage of these. The great thing about going paperless is that you can not misplace or lose the statements, they will be available online to download and save on your computer and you can access them anywhere at anytime. And of course you will be saving trees!

3. Go on Autopilot

If you have several bills to pay chances are that not all of them are due at the same time and sometimes you forget some. Just set all your bills on pre-authorized payment plans, maybe through a rewards credit card, and just make one monthly payment towards your credit card. No need to remember ten different bill payments, just make sure you don’t forget your credit card bill.

4. Consolidate Brokerage Accounts

Like bank accounts, there is rarely a good reason to have several brokerage accounts. Too many broker accounts will make it difficult to keep track of your investments and can often cost you more. Consolidate your brokerage accounts to the one you feel the most comfortable with. It will make it easier to keep track of your investment portfolios and reduce the chance of overlapping investments. This can also be beneficial as often when your assets pass a certain threshold you receive discounted fees.

5. Monthly Review

Often people start off good with budgeting and calculating their net worth, but then forget about it for a year and have to start all over again because they don’t remember everything. Keep track of your budget and net worth on a regular basis; I suggest you do it on monthly basis like Frugal Trader does. It’s much simpler to make month to month updates and track changes than it is if you do it annually or semi-annually. Tracking your net worth and budget on monthly basis can also help you avoid financial disasters, imagine your are running a negative budget month over month, if you review it annually you could already be in trouble by the time you realize, but if you keep track of it on monthly bases you can quickly find the leak and fix it.

There is no magic to money management nor does one require special skills and education. Keep your finances simple and not only will you be able to manage them better but it will dramatically improve your chances of becoming financially independent.

This is a guest article by Ray, the owner and primary author of Financial Highway, where he discusses investing, saving and practical money management concepts. You can check subscribe to his RSS feed or follow him on Twitter.

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About the author: This is a guest post. You can read more about the author in the biography above.

{ 20 comments… add one }
  • Kirk S. September 17, 2009, 8:34 am

    All excellent pieces of advice. The ones that have worked out best for me personally are to do the automatic payments route, to go paperless and the monthly tracking of my expenses and investments. Great advice!

  • Houska September 17, 2009, 10:52 am

    A concern/question about going paperless. At my bank, at least, paperless means you can download your statements a few months back on demand as a pdf. But you need to actually remember to do it, store it someplace, etc. So I’ve hesitated in part because of fear I will fall behind. My filing isn’t sophisticated – whenever I get my (paper) bank, credit card, or other bills, I take care of them and put them in a pile. Every 3 months I file the pile in my filing cabinet. I’ve actually never needed to go back yet, but I know it’s there. I fear that if I go paperless, I won’t regularly enough go to the hassle to log into the special site, download the statement, file it in the right folder etc. and when I discover I need something 3 years from now I’ll find I never downloaded that statement and it’s long gone…

    How do other people do it?

  • Ray @ Financial Highway September 17, 2009, 11:27 am

    Thanks to FT for letting me guest post on his blog, looking forward to future posts.

    @ Houska, you are right that going paperless could have it’s problems, but here are some ways around it.

    1. On your monthly review date, download all the statements online and save in appropriate folder. This works because in order to do your review you need those statements.

    2. Download the statements when you pay the bills, you are online paying it anyways so just take a minute and download the statement.

    3. Often institutions and companies send you an email that your statement is available online, that’s the reminder right there. Log in and download the statement.

    4. Worst case, ask your institution for a copy. They all have to keep the records so they have them on file, there maybe a charge to get them.

    Hope those can help

    anyone else have suggestions?

  • Craig September 17, 2009, 11:57 am

    I agree, once you take the jargon and numbers out of it finances can be simple when doing it right. Automatic transfers help out a lot, having savings goals help out a lot. Knowing the minimum basics and just getting started makes you better off than most.

  • Will @ Cheap Date Ideas! September 17, 2009, 12:13 pm

    Nice set of tips here, Ray! I feel that simplicity is key and relieves a lot of the stress surrounding less than ideal financial situations. lol.

    I especially like the bit about consolidating brokerage accounts – it can equally account for consolidating other things like debt at a lower rate so it’s much easier to track and measure your progress.

    Further, about the monthly review, I usually do weekly reviews for my finances(which goes the same for my personal development goals). I’ve been transitioning to more of a bi-weekly review whenever I get my paycheque. It been working for me fantastically well.

  • DAvid September 17, 2009, 12:26 pm

    I’m not sure how many of the bills I receive would consider payment by credit card; I know many won’t. However, most will create an automatic debit from your account. For those who like to be a bit more in control of their payments, I believe all banks allow post dated payments from your account. Thus you can deal with the bill when it arrives, but payment occurs at the time you wish. For me, this means I deal with the bill while it is on my mind, and don’t have to worry about it at a later time.

    DAvid

  • Maiku September 17, 2009, 12:53 pm

    In regards to keeping bills electronically, Canada Post is offering a new service called ePost which will receive bills from accepted partners (you have to check the list to make sure the companies you are paying are there) and file them for 7 years and allow you to pay them through the service. (www.epost.ca)

    The only thing preventing me from fully utilizing this service is that I already have all of my bills paid automatically by credit card so I am not sure if switching them over will cause an interruption or require me setting up those payments again.

    Anyone else have experience with ePost that can comment on how it is working for them?

  • Stephen September 17, 2009, 2:10 pm

    I really like this article. If you are really on top of your finances you can benefit from having accounts in multiple places and a lot of different accounts but there is definitely something to be said for keeping it simple and especially consolidating.

    I am pretty spread out right now and I would like to consolidate … but I am unfortunately spread out for various reasons and it makes it harder to consolidate for sure.

  • Ms Save Money September 17, 2009, 5:44 pm

    Good tips – another thing you can also do if you go autopilot is to call in and request a specific date for when the money is withdrawn. This will help so that you won’t get overdraft fees if money is withdrawn when there is not enough in the account.

  • ctreit September 17, 2009, 6:46 pm

    I think that the “Monthly Review” is not mentioned often enough. It may sound like it adds to the workload, but I think in the long run it keeps finances simpler if you keep on top of them. If instead you chose to clean up your finances only once in a while, you may have such a daunting task ahead of yourself that you give up before you get started.

  • Greg September 18, 2009, 2:11 am

    @Maiku, I also use ePost.ca and have done for a little over a year now. You can keep all of your existing preauthorized payments and just have the bills sent to epost where you store them. You are not in any way obliged to use the epost payment service. My bank also has an epost link, so I can check my bills from my bank website. epost also sends you an e-mail when bills arrive.

    This problem with downloading and storing bills locally on your computer, is that you need to back them up. If you have a computer crash, they’re all gone. (Computer backups could be a topic all by itself.)

  • used tires September 19, 2009, 1:41 am

    One other worthy note in regards to closing unnecessary bank accounts, and something I learned in my Money and Banking course 2 weeks ago…. anyways in the USA… if your bank fails and goes bankrupt, you’re money is protected up to $250,000 by the government, now… if you are a rich person and make alot more money than that… even if you have 3 accounts and spread that out between the banks… that does not mean they will reimburse you on all 3 accounts if all 3 banks that you hold a bank account in go bankrupt. Because… the $250,000 is insured for an “individual” and not “individual bank accounts”.

    I know that was random… but hopefully it will be good food for thought for some folks who open multiple accounts for this reason.

    Till then,

    Jean

  • cannon_fodder September 19, 2009, 7:23 am

    DAvid,

    You’re absolutely right… otherwise, I’d have my car payments, mortgage payments, property taxes, etc. all coming out of my rewards credit card!

    Ray – I have to admit, I love technology, but for some archaic reason I do like having paper statements. I have years of statements so that if something were to come up, I could go to it. But, while it wasn’t available years ago, most institutions can offer paperless record keeping. What I guess I am waiting for is the big payoff – when they have so few people actually receiving paper statements that they offer us a nice incentive to go electronic. I don’t think our utility bills are electronic but perhaps if we went with epost…

    Maiku – the only bill I have at epost is the Hwy 407 bill. As a result, it isn’t any more efficient because I’m not consolidating them.

    I have seen presentations (i.e. demos, so I don’t know if it was the future or present offering) about banks in the US who can aggregate all of your bank accounts, brokerage accounts and even bills on one web portal. Does any bank in Canada offer this yet?

  • Loving paperless September 19, 2009, 12:34 pm

    Greg and Maiku
    I have been using e-post for a year now and love it. I can download my bill and pay it immediately. Right now, I still print the bills as I have rental apartments, but since I have never been audited by CRA, I am considering just storing them. I store copies of all my bills and statements on a USB drive. That way, they are off my computer and don’t take up a lot of space.

    I have also changed all my bank accounts to paperless. After a few months, you get into a routine of which bills/statements are available when.

  • DAvid September 20, 2009, 1:27 pm

    cannon-fodder asks: “I have seen presentations (i.e. demos, so I don’t know if it was the future or present offering) about banks in the US who can aggregate all of your bank accounts, brokerage accounts and even bills on one web portal. Does any bank in Canada offer this yet?”

    Royal does, so I expect others do as well. Here’s a quote from their website:

    Change your existing account information or add your Online Banking loan, mortgage, investment brokerage and credit card accounts from other financial institutions. Each time you sign in, your selected online account balance information will appear in one convenient, comprehensive page.

    DAvid

  • Jillian Frye September 21, 2009, 3:07 pm

    Just because you don’t have a filing cabinet full of paper doesn’t mean you can’t keep track of your records with paperless billing. Many banks are moving in the direction of providing customers with downloadable ebills for a year and a half, if not longer. Definitely suggest simplifying your financial life by putting all your bills in one place so you don’t have to worry about forgetting anything.

  • Jillian Frye September 21, 2009, 3:19 pm

    Just because you don’t have a filing cabinet full of paper doesn’t mean you can’t keep track of your records with paperless billing. Many banks are moving in the direction of providing customers with downloadable ebills for a year and a half, if not longer. Definitely suggest simplifying your financial life by putting all your bills in one place so you don’t have to worry about forgetting anything. Paperless billing is the easiest way to keep track of your money.

  • Greg September 23, 2009, 7:43 pm

    @cannon_fodder, there is a service that can aggregate all your accounts. It’s http://www.yodlee.com . I have only just started playing around with it, but so far so good. It’s also free (it appears that they make their money selling the service to banks).

    – Greg

    • FT FrugalTrader September 23, 2009, 7:49 pm

      Greg, does yodlee support Canadian banks and credit card providers? Have you tried Wesabe?

  • Greg September 23, 2009, 8:18 pm

    @FrugalTrader, yes, Yodlee does support Canadian banks and credit card providers. I have tried TD & AMEX. I have only just started playing with it, so I’m not an expert. It has many of the same functions as Wesabe such as categorizing transactions. It also has a budgeting section. It also appears to be able to display brokerage account info (such as TD Waterhouse), but I haven’t set that up yet.

    I played with Wesabe for a while, but gave up in frustration. Yodlee is able to download account data automatically from banks, brokerages and credit card companies which Wesabe can’t do.

    For my budgeting, I have been using YNAB (www.youneedabudget.com). It is software that runs locally on your computer and from a purely monthly budgeting perspective it is far superior to anything I have found so far. The main problem is that you have to download all your bank and credit card info manually. YNAB has a free trial, but but it you’d have to buy it if you want to keep using it. There are also really great user forums and the tech support is great too. It comes with a philosophy that is aimed at helping people who are in debt and need help getting out, but it also works well for those of us that just want to be better able to track our expenses.

    – Greg

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