7 Ways to Simplify Your Financial Life
Minimalism isn’t just an interior design trend; it’s a way to approach your financial life.
It’s easy to get caught up in the latest trends and forget about the basics of a financial plan, but now might be a time to take a step back.
Professional athletes need a financial plan to accomplish their short and long-term goals, but if your accounts aren’t in order and you start pushing things to the side, you’ll get lost in the shuffle. That’s why we put together 7 easy and impactful ways to transform your financial mindset and simplify your financial life to put it on a firm, long-term foundation.
#1 Get Out of Debt
If you have debt, but you're saving in other areas, you're not saving money; you're just keeping it in a different place. The fastest way to get out of debt is by paying off those high-interest obligations first.
Student loans and mortgages fall into this category, but the area where we see most people struggle is credit card debt. Interest can get out of hand fast with credit cards, with the average interest rate hovering around 21%. Multiple late payments, or minimum payments, can send your wallet spiraling.
Prioritize paying off your credit card monthly, so you aren't spending more on interest.
Student loans are another type of high-interest debt that many struggle with. To start paying off these loans, consider:
- Paying more than the minimum each month
- Making biweekly payments
- Adjusting your repayment plan to a shorter term
- Researching refinancing options
Remember, if you have federal loans, the President extended the payment freeze until the end of 2022. But it’s a good idea to start planning for how you’ll make payments once they start back up in January.
Debt holds you back from achieving your goals. There are two strategies that are generally used when it comes to eliminating debt. One is to focus on the debt with the highest interest rate first and go from there. The other is to start with the debt with the smallest balance and funnel most extra funds there until it is paid off. Then move all the funds that were going to the smallest debt to the next smallest until all the debt is paid off, so on and so forth. Either way, the priority is to get rid of paying those high interest rates. Setting up a debt repayment plan with your financial advisor is a significant first step to eliminating debt and building your wealth.
#2 Prepare for Emergencies
Having an emergency fund is essential!
Because you never know when an emergency—like a global pandemic—may strike.
An ideal emergency fund will have enough to cover 3-6 months of your total expenses like rent, utilities, car payments, groceries, etc. It can also help keep you out of debt, like putting costs on a credit card, borrowing from family, or even dipping into retirement.
Let's say your car breaks down tomorrow, costing $5,000 to repair. If you have that emergency fund in your back pocket, your stress levels will be much lower because you can be confident you can financially handle an emergency. Then you can start to build up that emergency fund again.
Emergencies are stressful enough; don’t add finances on top of that if you don’t have to.
#3 Prepare a Budget (And Do Your Best to Follow It)
Budgeting is one of the most effective ways to simplify your financial life—it’s also one of the most overlooked.
Budgeting can seem monotonous, and we tend to discount the “basics.” But even the most straightforward budget can help keep you on track toward your financial goals.
Having a budget helps to keep you organized, puts a priority on saving money, allows you to identify potential unnecessary spending, and keeps the focus on your financial goals. Most importantly, a budget promotes intentional spending. Just the exercise of creating a budget will help you discover if you’re overspending and why.
When your goals and values drive your spending habits, your journey to build wealth will become achievable.
#4 Consolidate Your Accounts
If you have multiple checking, savings, and brokerage accounts, you likely have more accounts than you need.
Why should you consolidate your accounts?
- Simplicity: Having fewer accounts makes things easier to track.
- Security: It can reduce your risk of identity theft or fraud.
- Perspective: Consolidating gives you a bird’s-eye view of your money.
A common problem is people having multiple retirement accounts, especially ones from previous jobs. Unfortunately, millions of retirement accounts get left behind from changing jobs, but transferring your money can be simple.
Your advisor can walk you through many options, like rolling funds over into a traditional or Roth IRA. Don’t take a chance at losing your hard-earned savings!
#5 Take A Financial "Inventory"
As you consolidate your accounts, it’s a great time to take stock of everything. As time passes, life gets ever more complicated and it is easy to lose track of where everything is and why. When you start taking financial inventory, ask yourself:
What assets do you have? Assets could include income, real estate, investment accounts (stocks and bonds), and/or insurance accounts.
What debts do you have? Student loans, car payments, or credit card debt would fall into this category.
This exercise shows you the “bigger picture” of your finances and gives you a better idea of what your financial situation really is. From here, you can make a plan to build your budget, pay off debt, or start diversifying your portfolio.
#6 Automate Your Bills and Savings
Automating your savings takes the temptation of spending out of the equation. If a portion of your salary goes directly to your savings or retirement account, you don't see it. And if you don't see it, you might be less likely to spend it.
The same idea works with your bills. Putting your credit cards, utilities, loans, mortgage, or rent on autopilot can save you time and money. Late fees? Not anymore!
We’re all human, and sometimes we forget the important things like saving or paying our bills. Automating these tasks takes the pressure and worry off of your plate. If you start to simplify your financial life, you will start to achieve (or even crush) whatever long term goals you have specified in your financial plan.
#7 Develop a Long-Term Mindset
Focus on the big picture rather than the monthly payment. That matte black Model Y Tesla may seem appealing as it costs you only $400 per month, but in the long-term, you're still paying a huge chunk of money just to get from Point A to Point B. Is it really worth it for you?
If you keep your long-term financial goals at the forefront of the decisions you make, it will benefit you in the long run by getting you closer to your goals by making your life run much more smoothly.
A long-term mindset also allows you to make decisions based on your values and live out your family’s mission. Do you value going on vacation to spend quality time with your family? Or is giving back to the community a top priority for you?
Keep your values at the forefront of your decision-making so you can afford to do the things you love and eliminate spending on the things that don't serve you or bring you fulfillment.
If you think simplifying your financial life would benefit your financial journey, get in touch with our team today.
This information does not constitute an offer to sell or a solicitation of an offer to buy any securities or investment strategy and is intended for informational purposes only. Investments are subject to market risk, including the loss of principal, and the investment strategies described may not be suitable for all investors. Equities are subject to market risk meaning that stock prices, in general, may decline over short or extended periods. The information contained does not take into account any investor's specific individual investment objectives, particular needs, or financial situation. Nothing in this material constitutes investment, legal, accounting, or tax advice, or a representation that any investment or strategy is suitable or appropriate.