THE BROKEN WALLET

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How to simplify your financial life and become a financial minimalist?

Living simple means different things to different people. For some, it involves having less stuff to worry about and maintain. This frees up time to do the things they enjoy, in which case simplicity might even contribute to great happiness.

But simplicity doesn’t only apply to material things. It can also apply to your finances, making it easier to manage your money.

If you feel your finances are a little “out of control,” here’s a look at a few ways to simplify your finances starting today.

1. Consolidate Bank Accounts

Now, I’m a believer in having multiple bank accounts for different purposes and goals. I’ve spoken about this previously, and I maintain separate accounts myself.

One benefit of having multiple savings accounts is that you’re able to keep non-emergency funds separate from your emergency funds, plus you can separate funds for different goals. 

But, of course, there’s no rule that says you have to do it this way. And the truth is, the more bank accounts you have, the more accounts you have to monitor and manage. For some people, this is more overwhelming than practical.

The thing is, most people can get by with one checking account and one savings account. 

If you stash funds for multiple goals in one account, you can simply keep a written or mental note of how you’ll allocate funds in this account. This approach might involve a little more record keeping—but it can work.

Keep in mind, too, consolidation doesn’t only work with bank accounts. 

Maybe you feel it’s a hassle keeping up with multiple credit cards—which involves multiple due dates. If so, it might make sense to use one credit card—maybe one that offers cash back or a rewards program—and give the other cards a rest. This way, you have fewer cards to manage throughout the month.

2. Invest in Funds, Rather Than Individual Stocks

Investing is an excellent way to put your money to work and grow your personal wealth over time. So outside of your retirement account, you might look into other types of investments.

But while stocks historically offer higher returns, investing in stocks can be intimidating. This is especially true if you’re a beginner investor since you’ll need to thoroughly research companies and build your own portfolio.

If you don’t have a lot of time to pick stocks, or if you don’t trust your own knowledge or experience, another option is to invest in funds. 

A couple of options include mutual funds and exchange traded funds (ETFs). Mutual funds are managed investments that pool funds from different investors to purchase securities. ETFs are similar to mutual funds, but these are baskets of securities sold on an exchange. Investing in funds offers diversification, reducing your risk.

To invest in funds, you need to open a brokerage account, or you can use micro-investing platforms like Acorns. 

If you use Acorns, you’ll link a credit card or debit card to your account after signing up. From here, Acorns will round up your purchases to the nearest dollar, and then invest your spare change in a diversified portfolio of ETFs. 

There’s also the option to set up recurring investments to your account, or you can make one-time investments at any time, as little as $5. Click here to sign up and start investing your spare change.

3. Tackle One Major Goal at a Time

It’s not uncommon to work toward multiple financial goals at once. This might include saving up to buy a house, paying off debt, and so forth.

But while goals can keep you focused, it’s important to be realistic with your time and ability.

When your goals are actually attainable, it’s easier to make progress. This can build your confidence and keep you motivated. 

But if you’re working toward multiple major financial goals at once, with so much going on, you might fall short on every goal. This can be a confidence killer. 

Or you might put unnecessary pressure on yourself, which can lead to stress and anxiety.

Now, I’m not saying you shouldn’t work on several big goals at once—everyone has different abilities and circumstances. 

But if you feel overwhelmed, or that you’re not making any progress because you’re being pulled in too many directions, consider scaling back and focusing on one major goal. 

Once you’ve made headway or achieved this goal, work on another one. If you put most of your energy into a single goal, you might accomplish it faster.

4. Simplify Finances By Eliminating Paper

A lot of people might already do this. But if you haven’t started, seriously consider going digital and eliminating paper. 

This is an excellent way to not only simplify your finances, but also reduce visual clutter.

I receive every single bill via email, and since going paperless years ago, I only check my mailbox about once a week (we have a lock on the box, so this is a safe option for us). And I have to say, I have noticed a huge difference as far as clutter. 

Back when I received paper statements, for some reason I would hold onto statements long after paying the bills. My intentions were always to get rid of the paper bill once the payment cleared my bank account. But I would get busy, and stuff would accumulate.

Now, I don’t have those problems.

As far as documents you have to keep, consider getting a document scanner. This way, you can scan a document and get rid of the hardcopy. We’ve been using one for probably five years, mostly scanning receipts for warranties and car repair information. 

After scanning the document, go into the software and categorize it for easy retrieval.

5. Automate Your Payments or Batch Pay Bills

It also helps to automate your payments, which ensures you’re paying bills on time. This is great if you’re super busy and due dates slip your mind. 

Plus, automating your bills means there’s one less thing to worry about.

And yes, I know some people are uncomfortable with money being automatically taken from their account. I used to be this way. 

However, once I started automating a few bills I found that it does make life a lot easier.

Of course, you have to budget and make sure there’s funds in your account. 

If you always have money in your account for bills on or before your due dates—and you’re going to make an online payment anyway—automating is worth a try. If you don’t like it, you can always stop.

On the other hand, if you’re completely against automating your bills—and there’s no convincing you otherwise—you can simplify your finances by batch paying your bills.

This does take some planning, but the idea is to pay all your bills on one or two days during the month. You can also try to get at least one month ahead on your bills, so by the first of the month, you already have funds in your account for that month’s expenses.

6. Pay Cash to Simplify Your Finances

Honestly, I can’t remember the last time I paid for something with cash. But thinking back to when we used cash often, it was simpler.

For years we used the envelope method for variable expenses. This included gas, groceries, and entertainment—and this system worked. 

We didn’t overspend because we committed to only spending the money placed in our envelopes. This resulted in less impulse buying. And with fewer debit card transactions, it was easier to track our spending.

7. Reduce Expenses

Simplifying your finances doesn’t get any simpler than decreasing your monthly expenses. Ask yourself an honest question: Which of my monthly expenses stresses me out the most, or makes it difficult to get ahead? 

This might be housing, and if so, could you possibly find something cheaper?

Or it might be your car. And if so, can you become a one-car family, or buy something cheaper?

8. Get Out of Debt

Another great way to simplify your financial life is to get out of debt. And while it’s okay to focus on paying off a mortgage, I’m specifically talking about eliminating debt that doesn’t make you money. This includes credit card debt, car loans, and other installment loans.

There isn’t always a quick fix for debt. But regardless of how much you owe, come up with a plan to accelerate and pay off your balances as quickly as possible.

Using money from a side hustle, second income stream, or a pay raise helps. But you can do other things, too. For example, making higher payments and more frequent payments can get rid of credit card debt sooner. You can also negotiate a lower interest rate. 

As far as car loans and student loans, add a little extra to each monthly payment. And if you’re paying a high mortgage rate, see if you can refinance and get a lower rate. This will likely reduce your monthly mortgage payment, freeing up cash to pay off other debts.