Simplify Your Life

Here lately I’ve noticed a lot of “noise” in my financial life.  When I started earning some money from my online ventures I piled business accounts (checking and savings) on top of what was already a chaotic mix of bank accounts.  Apparently, those last two accounts were the final straw, because it was at that moment that what used to be a minor annoyance became a downright irritant – we had too many accounts floating around.  It was time to simplify our life, and consolidate into just one or two of the best online banks.

While I did not officially declare it a 2009 resolution, we have made it a goal to consolidate accounts to simply our financial picture.  Here are a few tasks we are working on now.


Photo courtesy of wrestlingentropy

Close unused bank accounts.  There is the bank account I opened in college, and the one I opened for employee checking benefits at my last employer.  Then there is the account at ING Direct, the local credit union, and the place that financed our family vehicle (which is just a month or two from being paid off!).

Few things drive me more crazy than getting statements for the $4.17 in accumulated interest from a bank I haven’t done business with in years. Time to make a few phone calls, write a few letters, and close out those old banks. Besides being a nuisance, there is added risk of identity theft in having my personal information scattered around several financial institution’s databases.

Reduce budget categories.   In the last few months we have made progress towards this goal, but looking back at my budgets in previous months it looks like I was tracking everything under the sun.  While there is some value in tracking expenses at a granular level, eventually it gets to be a real chore and we sort of lost sight of the big picture.

For example, we used to track budget categories like “paper products,” and “cleaning supplies.”  It might be good to know if you spend $40 a month on paper plates, napkins and paper towels, but tracking to that level of detail required meticulous reviews of all receipts or using separate shopping carts.  That was a pain.  We decided to just consolidate these categories into a “household” category where we track combined budget amounts from most of the old, smaller categories.

Consolidate debt to as few accounts as possible.  When we first began our debt snowball plan we had several debt accounts – credit cards, student loans, a car loan, and an old consolidation loan.  The first step to simplify our finances was to consolidate a few of the smaller debts (mostly credit cards) to one or two credit cards with a low interest rate.  We then cut up all but one card and worked to pay off other debts in order of their balances, smallest to largest.  Every time we work one down to $0.00 it feels great knowing that’s one less statement we’ll get in the mail each month.

Automate utilities and other fixed-rate payments.  One of the best things we did related to monthly utilities was sign up for levelized (or budget) billing from our energy company.  The service averages your last twelve months of usage and charges the average amount each month.  The extreme heat of summer isn’t quite as painful when offset by cooler months where we use less electricity, and it’s nice to know within a few dollars what your utility bill will be each month.

We also have a number of our “fixed” payments automatically drafted from our checking account.  I distinguished between “fixed” payments and “variable” ones, because variable payments can catch you by surprise if something goes wrong.  For instance, a friend of mine once had $1,600 debited from his checking account to auto-pay his cell phone bill because his phone was stolen and used to make unauthorized long distance and 900-number phone calls.  It was eventually straightened out, but it took a few days to get that $1,600 payment reversed from his checking account.  Probably safer to stick with things like cable service, utilities, insurance premiums, etc.

This is just a sampling of things we have implemented recently to simplify our financial life.  Some may work for you; some won’t.  That’s the great thing about personal finance-it’s personal.  You may enjoy tracking spending to 27 budget categories (I used to). Or you may find creating master categories and tracking at a higher level frees up time to spend doing things you enjoy more.  It’s your call.

Comments

  1. We only use two places, ING and our local bank. It works well for us.

    As far as the spending categories, I keep it overly simple, while my hubby likes it really detailed so, like you said … it’s personal :)

  2. I’ve been working on most of these over the last couple of years. The best thing I did was put as many bills as possible on auto-pay. When we had our twin daughters 3 1/2 years ago, it was a life-saver because the time available to pay bills was greatly diminished. I’m working now on consolidating our bank accounts so that we’re only dealing with two — like Nicki, an online account and our local credit union.

  3. I like the idea of consolidating bank accounts. My fiance and I plan to consolidate our accounts — right now we have his, hers and ours banks, both checking and savings accounts. It’s a bit much! We’re going to have a joint checking and savings, along with individual savings accounts for “play” money. Which will hardly be touched, since we’ve become so frugal.

  4. I’m going to look into the leveling plan at our local utility…that can make things more predictable….good for the budget.

  5. I’m not crazy about auto pay for paying bills . . . what if I want to dispute something! ;-) But I can see how it is a time saver for some.

    But yes . . . good list. I have a brick and mortar bank and ING and one large CD at a credit union. Thinking about moving my regular checking/savings from the brick and mortar to the credit union, as their rates are SO good. But I’ve been with this bank for nearly 20 years, not sure about a switch right now. But, again,w ith the economy as it is, ya gotta go where the rates are sometimes.

    Nice article, FrugalDad . . . thanks again for your work on this blog!

  6. I definitely recommend the equal payment plan for utilities. Now when I make my budget, I know what to expect for my gas and electric bills.

    I try to keep things as simple as possible. If it gets really complicated, I feel less compelled to track my budget and may even miss bill payments.

  7. I absolutely agree with this. I have everything on auto-pay that I can. One minor tip.

    If you have a music teacher or cleaning person, rather than write a check each week, we write a check once/month and keep tabs on the outstanding balance. This way, I have fewer checks to reconcile in my bank account and it saves lots of time.

  8. I’ve also been “enjoying” the relatively detailed tracking and analysis of expenses in an effort to reduce spending and ensure spending lines up with personal financial goals. I have comment/insight that I’d offer in response to this post (which I enjoyed). I spend much of my day thinking about how to most effectively develop software (this is my day job). There’s a correlation that I noticed while reading your post. Identifying the right metrics to track is a key activity when planning how software development projects will be managed. In the software development context it is typical to focus on a few measures until improvement is both measured and stable, then begin tracking different measures.

    In the personal finance context a similar approach could be taken (as you describe). For instance, one might start out by tracking detailed, variable outflow of expenses since these are typically the items where ignorance of the number is most typical and detrimental. Most people know how much their mortgage is but often have an unrealistic perception of their spending on food or daily habits. Once detailed tracking has informed and helped instantiate positive change in spending habits, one might shift focus to the big ticket spending and/or net worth tracking.

    As I read your article it seemed to be a reminder to folks that it is possible and even beneficial (given the time/sanity cost) to streamline the “metrics” you gather about your personal finances so you are focused on the financial issues that you are most concerned with now, not months or years ago.

    Just my thought… I really enjoy reading your blog and just wanted to add a bit to the conversation.

  9. I agree that simplifying the accounts is the best way to go. The less you have, the less worry over them. For those who are just beginning to dig themselves out of debt, tracking spending is very important, though I don’t think it is necessary to divide the household expenses into a variety of categories as you used to do. I think the high level approach still makes sense in any situation, so long as it is being done. It is something that I am not as thorough as I should be. I should work on that.

  10. Reducing budget categories is key. It takes a lot of time and is a big hassle to do so. Consolidate and combine categories or just track all cash items together instead of nitpick.

  11. I wish my mortgage company would allow for automatic withdrawals from the bank without charging an additional $300. For many homeowners, like myself who get paid twice a month, two timely withdrawals a month would save a lot of interest money over the life of the loan.

    For now, I send two checks a month, after carefully copying my statement and making sure the address for the second envelope is perfect.

    I am still afraid that the second payment, since it is not in their standard envelope, will languish on some desk somewhere.

  12. I do levelized billing for my electric bill & I love it because if varies only a little from month to month & no huge bills in the summer.

    I don’t like the idea of auto pay – I’d prefer to trigger my own payments. I do pay nearly every bill online, and it takes just a few minutes each month.

    I have one local bank account, plus ING, and I monitor my college son’s account at a 3rd bank (more convenient in his college town).

    I have been thinking of opening a high-interest checking account at a local bank – pays 5.5% the highest I’ve found anywhere. Problem is I would actually have to use it as my primary checking due to direct deposit & debit use requirements. I’ve been with my local bank for 25 years – and I LIKE it. But its not where I can get decent interest on my money.

    So I’m torn. I don’t want to close my long-time checking account. I’m considering opening the high interest checking & maintaining the other to see how it goes. It will complicate things, but with ING paying less than 2% interest, 5.5% is looking good…

  13. Ok.. I have a question…. Does making weekly or biweekly payments work on car payments??? Or does you lender have to offer a special program to do that and have it save you on interest???

  14. Great article. I need to sit down and do this myself. I have so many accounts that I have opened over the years. I actually got a statement the other day from a bank I’d totally forgotten about.

  15. Great article.

    A couple of years back I set up a few different accounts at the bank and it helps me to stay on top of our ‘special’ bills, monthly bills, and savings. This way each account is specially allocated and I can easy track everything throughout the year.

    Thanks again – Theresa

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