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How to Simplify Your Financial Life

When we simplify we make room for the most important things in life.
Never in the history of the world have people been faced with so many options that compete for our time, attention and money. The options seem endless. In the U.S. there are over 631,000 financial brokers, 3,700 securities firms, 6,799 FDIC insured commercial banks and hundreds of personal finance apps that are changing daily. All of theses options are available at the touch of a button or an app. Some of theses services have simplified finances for many, but the 21st century with its gazillion options has also made the century the most complex. The easiest of times and yet the most complex of times.
In the book Your Money or Your Life the authors published a study and a happiness index graph showing that happiness actually begins to decrease at a certain point of excess spending. Partly because life becomes too complex, cluttered and not simple enough. When we over-purchase we risk being “time-consumed” with too many things. “A rich man doesn’t own his things, rather his things begin to own him.”
“A rich man doesn’t own his things, rather his things begin to own him.”
1. More Money Isn’t Always the Answer
Most people think, “If I had more money, my financial problems would solved.” There are circumstances where this is the case but it’s usually not. More money will not simplify your financial life, managing what you have will. So, why do you work so hard for money? If you’re the average American, you work 40 hours a week and spend less than 40 seconds managing your paycheck. More money not only doesn’t makes your life easier, but it can often complicate it. Focus on activities that are going to bring in more money but understand that more money alone will not solve financial problems. According to the Pareto Principle personal finance is 80% behavior and 20% numbers. It comes down to your behavior and spending habits vs. how much money you make.
2. Eliminate Debt
Each time you eliminate debt by paying it off you are simplifying one part of your finances. When you owe money to multiple people and businesses it can cause a significant amount of stress. This is one of the best ways to simplify your financial life and bring peace of mind into your life. Become debt free! Eliminating your debt is not going to happen overnight, but creating a plan and making small consistent steps towards being debt free will eventually get you there.
3. Simplify Banking
In a Financial Technology world we live in, most people often feel confused with their finances and taken advantage of when it comes to their bank, insurance, investments and credit cards, which are always changing. Look at your bank as the most basic root of your finances and everything else flows from that bank into other branches. It may make sense for you to consolidate all of your checking and savings accounts into one checking and one savings. Often banks charge fees for extra accounts. You may also want to add additional savings accounts for different financial goals to keep things simple and separated. I have multiple savings accounts for different purposes which makes reaching my goals easier because I know what the money in that account is going to be used for.
“You can’t manage what you don’t measure.”
4. Income and Then Expenses
“You can’t manage what you don’t measure.” Do you make more than you spend? Do you spend more than you make? Are you even sure? Life can get busy and complicated but if you want to improve and make your financial life simpler, you need an understanding of where your money is going. Do you look at your bank accounts or credit card bill at the end of the month and say, “where did all of my money go?” If yes, it’s because you’re not budgeting and tracking your expenses. I’m not going to spend any time talking about how to budget here but that is a necessity. It’s as simple as looking at what you have coming in and what you have going out and writing it down. You can make it as complex as you would like but it doesn’t need to be.
5. Pay Yourself First
If there is one simple thing that you could do each time you get paid that will set you on the path towards financial freedom, it’s deciding a percentage of your paycheck that you are going to pay yourself first. Do it before you pay any bills or expenses. You may be the type of person who is frugal and saves quite a bit of money after you pay your expenses. But you also may not have as many expenses and what happens if one month your tires blow out, or your pet takes a trip to a vet. These events for most people, mean that they don’t save any money that month. You are usually the last person to get paid after taxes, bills, and variable expenses, but you need to get in the habit of paying yourself first and investing in your future every month. More important than the amount you save is the habit. Divide your money every time you get paid into a savings account. If you’re a saver or a spender you’ll enjoy watching your accounts grow.
6. Automate Everything But Actively Track It
One of the main actions you can take to simplify your financial life is to automate as much as you can. Automate your savings, your bills, your investments, even your income and elect to receive electronic documents. Along with automating your finances use a tracking software like Mint or Personal Capital to stay on top of all of your finances. You’ll only have to log into one place versus five others to try and understand where you are. Plus, they give you graphs and visuals to easily track bills, investments, and your net worth!
There are a lot of tools and implementing even a few of these will go a long way in helping you simplify your finances.
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Last Updated: 12/12/23