Streamline Finances For Stress-Free Money Management
Are you just getting started as a young adult in this world? Or maybe you have a few miles on your tires?
Whatever your situation, NOW is the best time to streamline finances. This should be one of your personal finance goals.
How do you simplify finances? Well, by completing some fundamental money tips that I’m going to share with you in this article.
At times, my views may go against conventional thinking or popular attitudes about money. I will point out those views as we go.
Disclosure: At no cost to you, I may get commissions for purchases made through links in this post.
Why Should You Streamline Finances?
It’s hard to get ahead financially. Let alone build real wealth, if you are disorganized with your finances.
Furthermore, streamlining your finances IS NOT difficult. And finally, doing so will save you time and financial stress as you move forward with your life.
Assumptions Before We Talk About Streamlining Your Finances
I’m also going to make a couple of assumptions about you. First, you earn an income. Furthermore, you have some basic financial discipline. Finally, you do not make common financial mistakes.
More simply put, you work for a living and live within your means.
If that’s not the case, you probably should be looking for some other type of personal finance advice.
Let’s also assume you have or want to have an emergency fund. Finally, you desire to invest for your long-term future. And want those investments in a mix of stocks and bonds through mutual funds or exchange-traded funds.
Let me briefly summarize these assumptions. Specifically, you:
- Work for a living
- Live within your means
- Have (or want to have) an emergency fund
- Desire to invest for the long term in stocks and bonds
Related: How To Determine When You Can Retire
These represent some pretty basic, but really important money management objectives. And, we can accomplish all of them with a streamlined finance operation the keeps us out of financial trouble.
So let’s not delay. Here are 13 tips to streamline finances. And a little personal finance education along the way.
Be sure to work some of these tips into financial goals.
Streamline Finances Within Your Company 401(k) Plan Investments
First of all, I hope your employer offers a 401(k) plan. And if they do, I hope you are enrolled and contributing through deductions from your paycheck.
If you are not participating, make it a short-term financial goal to do so. It is a great way to build up your finances. Ask your human resources department about your company plan and how to get enrolled.
Then, save as much as you can in your company 401(k). At a minimum, save enough to get the full company matching contribution.
The company match is like free money. They want to give it to you.
You wouldn’t turn down part of your paycheck. Would you? So why ignore your company’s matching 401(k) contribution?
So now that you are enrolled in your company 401(k). Keep your investment choices simple and streamlined.
Select just one quality, low cost, balanced mutual fund for your 401(k) contributions AND your employer’s matching contribution.
What Is A Balanced Mutual Fund?
According to Investopedia, a balanced fund is a mutual fund that contains a stock component, a bond component and sometimes a money market component in a single portfolio.
These funds stick to a relatively fixed mix of investments. Specifically, their holdings are balanced between stocks and bonds. The objective is to balance between asset growth and current income.
Balanced funds are geared toward investors who are looking for a mixture of safety, income, and modest capital appreciation.
Streamline Finances By Signing Up For Direct Deposit
So you are earning your paycheck. And, making contributions to the balanced mutual fund in your 401(k) plan.
Of course, those dreaded taxes are also being deducted. As the saying goes, the only 2 sure things in life are death and taxes.
But what is left over is yours to spend on your needs and wants. But, I want you to get that money as fast as possible.
Set up the balance from your paycheck to automatically and directly deposit into your bank account.
Make this one of your short-term financial goals. Get it done. And no longer mess around with a paper paycheck. Again, your human resources department should be able to help you with the appropriate paperwork.
Streamline Finances By Consolidating Bank Accounts
I always grimace when I read something that suggests you need 3 or 4 or 5 bank accounts. Actually, if I see that headline, I rarely read the article.
The author may have valid reasons for having so many accounts. But, it’s just unnecessary in my opinion.
In addition, multiple accounts complicate life for anyone who has basic financial discipline. Remember, basic financial discipline is one of the assumptions for this article.
1 Checking Account Is Plenty
Do you have multiple checking accounts? Then, I suggest you consolidate down to 1 checking account.
Shop around to get free checking. I use my local community bank.
They offer basic checking accounts with no monthly fee and no minimum balance requirements. I cringe when someone tells me their bank charges a recurring monthly fee for their checking account.
Your bank might not pay much interest on funds left in the account. But that’s okay, we won’t be leaving much money in it.
Streamline Finances By Consolidating Credit Cards
Use only 1 (or maybe 2) credit cards. Ideally, find one cashback credit card and use no others.
We put more than 95% of our monthly out of pocket expenses on 1 cashback credit card. Depending on their promotions, the cash rebate amounts to 2-3% back on our spending.
It is more free money! Just like your company’s matching 401(k) contribution.
And this is money back on things we buy every day. Groceries, items for our house, automobile maintenance, and anything else we need or want.
Once in a while, our primary credit card is not accepted by a retailer or restaurant. So, we have another card as a backup. But for most months during the year, it does not have a balance due. Because we do not use it.
Get More Cash Back With Ebates – A Rakuten Company
We also stack our cashback rewards by purchasing online through Ebates whenever possible. Ebates offers a great way to save and make money.
You can sign up with Ebates right here.
Automate Credit Card Payments To Your Bank Account
This is really important. Never, ever miss a credit card payment.
The fees credit card companies charge for missed payments are ridiculous. And if at all possible, never carry a balance on your credit card. The interest rates are very high.
Now you may say to me… “get real, Tom, I have credit card debt.” Well, remember another one of the basic assumptions for this article. You live within your means.
Those who live within their means do not carry credit card debt. They have the basic financial discipline and ability to pay that balance off every month.
That discipline comes from living in an affordable location. Driving a modest vehicle. And by keeping a watch on spending. Finally, financial discipline is another basic assumption for this article.
So, go into your 1 credit card account online. And put in the bank account information from your 1 bank account.
Then, select the credit card account option to have your balance paid in full automatically each month through a direct charge to your 1 bank account.
Streamline Finances By Automating All Recurring Bill Payments
Now we have one big recurring monthly bill taken care of. That bill being the 1 credit card we put all of our out of pocket expenses on.
But we have other recurring monthly bills to deal with. Here’s what comes to mind for most people:
- Car payments
- Student loans
- Electric bill
- Gas bill
- Water bill
Take the time to set every one of these recurring expenses to automatically pay directly from your checking account.
Never worry about missing a payment and incurring late charges. Never hassle with sitting down and writing checks.
Go online to each of your loan and service provider accounts. Put in your banking information for your 1 checking account. Then select to have the balance paid in full each month.
Streamline Finances By Never Using Cash
Now I know some personal finance experts recommend different variations of the cash envelope budgeting system. It is where you have a set amount of cash in envelopes allotted for different budget categories.
What happens when the cash is gone from the envelope for the month? You can spend no more.
In addition, some people believe they are more careful when spending if they actually see the cash leave their hands. Rather than using a credit card which makes it seem like play money.
Well, all of those reasons are fine. If that’s what it takes to you from overspending. But, I will go back to 2 basic assumptions for this article.
- You are capable of living within your means
- You have financial discipline
So never use cash. When it’s time to track your spending, it’s hard to track cash. Unless of course you keep paper receipts and go through them once a month.
But that is not my idea of streamlining finances and simplifying your financial life. So, never spend cash.
A Quick Recap On Our Progress Thus Far
So we have your finances streamlined in your 401(k). Your paycheck is direct deposited into your 1 checking account. And finally, all of your recurring monthly expenses are automatically withdrawn from that same 1 checking account.
Now hopefully, you have a little money left over at the end of the month. So now, let’s streamline finances as it relates to your excess cash. I call it free cash flow.
Transfer Excess Cash To An Investment Company
Whatever money you have leftover at the end of the month, I want you to electronically transfer it out of your checking account.
The amount will probably be different every month because your expenses will fluctuate. So, it is difficult to automate this step.
But, it is an important step. Get your excess cash out of your checking account and over to your investment company so you are not tempted to spend it.
Streamline Finances By Consolidating To 1 Investment Company
Now I just mentioned an investment company. That’s right. You need 1. And only 1.
A company like Vanguard is an excellent option. They have pretty much everything a saver and investor will need, all in one place.
And your account is going to have just 2 holdings. The first will be a money market account. And the second will be a balanced mutual fund.
The Money Market Account Is For An Emergency Fund
It’s just good money management to have an emergency fund. Most experts recommend having 3-6 months living expenses on hand in case something unexpected comes up.
I’m going to have you build this fund up in a money market account. And, it will be held at your 1 investment company.
Building up your emergency fund should be a priority. Each month, transfer your excess cash from your 1 checking account to your money market fund held at your investment company.
What Is A Money Market Fund?
With a money market account, you have access to your cash whenever you need it. And that is important for an emergency fund.
Money market accounts, however, are not guaranteed. They are comprised of very short term, high-quality investment securities.
Money market accounts carry an asset value of $1 per share owned. If you deposit $100 dollars in a money market account, then you are the owner of 100 shares at $1 per share.
Only in very rare circumstances does a money market account share value differ from $1 dollar. This is called “breaking the buck”.
In rare circumstances, the underlying assets in the money market fund may not support a $1 per share value. In this case, financial institutions that offer money market accounts will usually cover the difference.
Breaking the buck would be a huge negative for the financial institution offering the money market account.
In summary, money market accounts are a very safe and liquid place to hold your emergency fund dollars.
Have One Balanced Mutual Fund Investment
Now you have your emergency fund held in your money market account filled with cash at your desired level. Any excess cash you generate on a monthly basis should be invested in a balanced mutual fund.
We already know all about balanced mutual funds. You have one in your company-sponsored 401k. Ideally, you choose the same fund for your excess cash outside of your 401(k).
Your Streamlined Financial Operation
I have loaded a lot of information on you. If it is a little overwhelming, that’s okay. Let’s review and summarize a couple of different ways.
Your Streamlined Financial Map
To help you learn and understand, I have mapped it out for you. The diagram below represents your streamlined finance map.
Your Streamlined Financial Process Flow
And here is a bullet point description of how your finance map will flow.
- Part of your paycheck goes to your 401(k) contribution in a balanced mutual fund
- Your take-home pay is directly deposited in your bank account
- All of your monthly bills are automatically deducted from your bank account
- Each month you transfer excess cash to your 1 investment company
- Where you fill your emergency money market fund to the desired level
- Then put any remaining cash in a balanced mutual fund
Put All Account Login Pages In A Favorites Folder In Your Web Browser
Now you have several online accounts to look after. Set all of your online account access pages up in a favorites folder on your web browser.
You should have a favorite for the following online account access pages:
- Bank account
- Credit card account
- All service and load providers that bill monthly
- Company-sponsored 401(k)
- Investment company account
You have about 10 favorites set up for your account access pages. More or less depending on your circumstances. The service and loan providers will make up most of them.
Streamline Finances By Going Paperless
Now, go into each of the 10 accounts and set them up for paperless billing and paperless account statements. If you ever need that information, go online and get it.
You do not need those bills and statements coming to your mailbox through snail mail. One less thing to worry about!
Create An Efficient Means To Store Passwords
Each of these 10 or so online accounts will require a user ID and password. Document them and keep them in a safe place with any other passwords you need to keep track of.
Monitor Your Newly Streamlined Finances
Now that you have your streamlined finance operation set up. Keep an eye on things.
Personal Capital is a great way to monitor and view your money. And best of all, Personal Capital is free to sign up and use.
You can get your free Personal Capital account right here.
Streamline Finances Summary
That’s all I have for today. Here’s a quick recap on how to streamline finances.
- Invest in 1 balanced mutual fund in your company 401(k)
- Use direct deposit for your paycheck
- Consolidate to 1 checking account
- Consolidate to 1 (maybe 2) credit cards
- Automate credit card payments from your bank account
- Automate all recurring bill payments
- Never use cash
- Consolidate to 1 investment company
- Have only 2 holdings in your investment company account
- Put all account login pages in a favorites folder in your web browser
- Go paperless
- Create an efficient means to store & retrieve passwords
- Monitor your money
Do these things and you will run your finances like a small business. The most important business. The busines of YOU!
Author Bio: Tom Scott founded the consulting and coaching firm Dividends Diversify, LLC. He leverages his expertise and decades of experience in goal setting, relocation assistance, and investing for long-term wealth to help clients reach their full potential.