I hate that people find their financial life stressful. I understand why it’s the case if your income doesn’t meet your needs or you’ve got a pile of debt to think about. But this problem seems to exist even among the “mass affluent” with their outsized incomes and
Automatic Bill Pay
If it can be autopaid, do it. There’s no reason in the world you should be looking at those bills monthly and writing checks or getting online. I don’t receive a single physical bill. Everything auto drafts from my checking account or hits my credit card (preferably for points). Just make sure you are looking at the amounts as they hit your account or email.
Automatic Savings
If you don’t have a savings account, open one. Once you do, determine whatever level is right for you and start automatically moving over some percentage of those paychecks to the savings account. Try to make the dates match your paychecks and you can avoid the strain of seeing the bank account bounce up and down.
If you’ve mastered this, consider creating sub-accounts for different purposes – vacation, new car, etc…
If you want to take it a step further, check out Digit, which tracks your spending habits and automatically starts pulling out small amounts of cash in to a savings account. I personally want this within my own control, but I can see the appeal.
Automatic Investing
Hopefully you have a 401k. If so, consider bumping up that percentage for 2016 and pretending like the cash doesn’t exist. It’s also a good idea to do this every time you get a raise.
If you have an IRA, stop putting money in it manually. I use Tradeking and like most brokers, it can easily autodraft $500 from my account each month. I have it coincide with a paycheck. More money I can pretend doesn’t exist since it leaves the same day it hits.
Clean Up Your Investments
January is the perfect time to make sure your investment accounts haven’t become a Frankenstein like monster! If you’ve worked at multiple companies, it’s very easy to end up with 3-4 401k’s, an IRA or 2, and a brokerage account that may or may not have too much of an old employer’s stock that you haven’t wanted to deal with. There may also be Roth and traditional versions of all these.
Each account may also have a bunch of different funds, many of which you don’t know the details (or fees). It also makes it impossible to track your asset allocation. This is dangerous and silly for such an easy problem to fix.
Once you’ve figured out what you have, it’s time to roll all those old accounts in to a single IRA (or 2 if you have Roth and Traditional old accounts). Combine that with your current 401k and a brokerage account and for 99% of you, 4 accounts is all you need.
Before you roll them, come up with a simple and clear asset allocation and the funds you want to go along with it (I’m personally a Vanguard fan). As you roll them, either sell or keep the funds according to your plan, and it should be relatively simple to get down to a handful of funds with a clear allocation. If you can’t explain your portfolio, then it’s too complicated.
Record Keeping
If you’re a gmail user, create a folder for anything you think you may need again in the future. I personally have ones called:
- Medical – I save all receipts, prescriptions, and insurance stuff here
- House – I save any repair receipts and related documents here
- Bills – All emailed bill receipts go here
- Taxes – Anything I expect I can deduct, like charitable contributions go here
I also have a variety of subfolders for my amazon business, blog, and other interests.
If you have physical receipts, get in the habit of scanning them to Dropbox and use a similar system to my gmail folders.
Subscriptions
The beginning of a new year is a perfect time to review any recurring charge you have. They’re incredibly easy to forget about and waste 1,000’s over the years on things you don’t REALLY care about.
Look them over and anything even close to questionable – cut. If you miss it that badly you can always subscribe again.
Track Your Net Worth & Expenses
Hopefully you’re already doing this, but if not, time to get started. We use Personal Capital and have all our accounts added. You can do it under probably 20 minutes and it’s a 1 stop shop for making sure you’re on track with your savings, investing and spending goals. Don’t guess. Track.
Review and Discuss
In our household we have 2 meetings we do in order to keep everybody on track. The first Sunday of a new month we go over our expenditures and income from the prior month and make sure everything looked alright (which is key if you don’t physically cash your checks or pay your bills).
Our second meeting is quarterly, where we talk about our annual goals and if we are on track to meet them for the year. It’s a great way to stay accountable and ensure everyone is on the same page. Without this it’s easy to find yourself in November and realize you’ve blown it.
Benefits
That’s it! Your bills get paid and all your savings happen effortlessly. No checks. No stress. No worry. You know that all your financial needs are being met before you ever see that checking account balance.
You can now spend without guilt. You’ve saved yourself a ton of time each month. Best of all, a lot of stress has been eliminated and you didn’t tap your willpower to get it done. Using these methods, I’ve managed to cut the time I spend on things like this down to a few hours a month.
If you’re not in debt and have good cash flow your finances shouldn’t be complicated or stressful.
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The first step to financial freedom is tracking your net worth. I love Personal Capital, my favorite tool to see all your accounts in place.
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