There are many words you may use to describe managing your finances, like time consuming, stressful and complicated. What about simple? Yes, you read that right. Imagine how you would feel if managing your finances was simpler. Find out 10 ways to simplify your finances, guaranteed to reduce stress and actually improve your financial health.
Why Simplify Your Finances?
Managing your finances can get to the point that it consumes so much time and causes so much stress that you begin to neglect them. Money stress can even impact your health and damage your relationships. The good news is that there are many ways to simplify your finances that will provide relief and save you time and money.
Ways To Simplify Your Finances
1. Set Your Financial Goals
Everyone needs to have goals to work toward and to provide guidance in life. This is true financially, personally and professionally. You can reduce your stress and simplify your finances just by setting financial goals.
Think about what you want to achieve financially and write it down or save it in a file. To ensure that you can achieve your goals and measure your progress, consider setting SMART goals. However, don’t complicate your life by working toward too many goals at once.
2. Tackle Your Debt
The average American had $90,460 of debt in 2018 according to Experian’s Consumer Debt Study. If you have multiple debts, you should start by organizing them in a list with the balance, interest rate, monthly payment and due date. This is already great progress toward simplifying your finances. The next step is to decide on a debt repayment strategy and then commit to it. You can learn more about 2 common methods to pay off debt in our article, Paying Off Debt: Snowball vs Avalanche Methods.
3. Batch Bill Paying
For many people, paying bills can be complicated because the due dates are spread out throughout the month. There may be an option to select your recurring due date, which we have seen for several service providers. But, 1 way to seriously simplify your finances is to batch bill paying (this is something that we do that has saved us a lot of time and stress). Select one day of the month to pay all of your bills and if this doesn’t work for your current financial situation, then at most select 2 days, like the 1st and 15th. No one will complain about receiving your payment early and you will certainly feel a weight lifted off your shoulders.
Learn about different types of bank accounts to find the right one for your lifestyle to help you reach your financial goals.
4. Automate Small Recurring Payments
To simplify bill paying even more, you can automate recurring payments. We recommend only automating payments that you are absolutely sure you always have enough money in your account to avoid overdraft fees. The downside of this is that since you are no longer taking the time to make the payments, you don’t feel the effect of your money switching hands. So this is not best for everyone, but it is a method of simplifying your finances.
A great way to make sure you don’t miss any credit card payments is by setting up automatic payments for the minimum balance and paying the rest of your balance on your batch bill paying day.
5. Cancel Subscriptions
Do you know what makes paying the bills take up even less time? Having less bills!
Look through your expenses for the past couple of months and make a list of all of your subscriptions. See if there are cheaper or even free alternatives to services you are paying for. For example, someone paying for an Audible subscription can research free library apps (our county library offers this and it has a great selection of audio and ebooks all for free). Not only does this save you money, but it reduces time spent paying bills.
6. Declutter & Go Paperless
Gone are the days of filing cabinets and important documents being mailed to you. If you are one of the many people with a collection of paper gathering dust and taking up space in your home, commit to decluttering. Go through all of your documents and scan any necessary ones that you may need later on. Be sure to save these files in a secure place and don’t forget to organize those folders. Then shred everything to protect yourself from identity theft. Finally, go paperless! This is an option for most, if not all, of the sources of your important papers. Some companies even offer a paperless discount, like Verizon.
7. Make A Budget
Going through the trouble of creating a budget may not sound like it’s going to simplify your finances, but just hear us out. There are basically unlimited budgeting strategies ranging from super simple to more complicated and arguably more efficient. The reason a budget will simplify your finances is that it will provide support for your financial goals and give you a clear understanding of your spending. If you don’t know where your money is going each month, then you are more likely to rack up debt and create bigger financial problems for yourself.
Find out more about simple budgeting techniques or a more time consuming strategy that has been proven to save people more money than other methods, the zero-based budget.
8. Set Up Sinking Funds
Do you struggle to pay for large, annual costs, like holiday shopping, taxes or insurance? A sinking fund is a method of saving small amounts of money on a monthly basis in order to save for a large purchase or financial goal in the future. You can actually build this amount into your budget and set up different sinking funds for different purposes. Learn more and use our sinking funds calculator in our article, How To Use Sinking Funds To Budget For The Future.
Sinking funds can make those large purchases less stressful and less damaging to your finances since you’ll be saving over time instead of having a drastic spending increase in 1 month.
9. Start An Emergency Fund
Would you be able to cover a $1,000 unexpected expense today?
Nothing complicates personal finances more than another line of credit and another bill each month. You can avoid accumulating debt when the unexpected happens by being prepared. Only 41% of adults in the US would be able to cover a $1,000 unexpected expense, according to a 2020 survey by Bankrate. Most experts agree that you should save enough to cover 3-6 months of regular expenses if you were to lose all income, but this can vary based on how many income streams you or your household has. Try to start by saving $1,000 and then work toward the 3 or 6-month mark.
10. Set Up Automatic Transfers to Savings & Investment Accounts
Pay yourself first. This means automatically transferring a percentage of your income to a savings or investment account to help you reach your financial goals. You can also build this into your budget, but since the funds are automatically transferred you don’t even have to think about it each month. Be sure to increase the amount automatically transferred as your income increases instead of resorting to lifestyle inflation.
Managing your finances doesn’t have to be complicated or stressful. Try out a few of these strategies to simplify your finances and notice the difference in how you think about your money. You can make your money work for you instead of feeling like it’s a chore to deal with. When you get to that point by implementing a few of these methods, you will get closer to achieving your financial goals and financial freedom.
Let us know in the comments how much simpler managing your finances is after trying out these strategies!
Financial freedom begins with good habits.Rebecca & Tiago, theloadedpig.com