If you're combining your life with a new spouse, moving from one house to another, or just frustrated with the amount of documentation you have filed (or unfiled) in your basement, it's a good time to simplify your finances. Simplification is not only practical, it is beautiful. This is the concept of kanso, a Japanese aesthetic usually applied to gardens. Through a stretch of the mind, we can apply this beauty to our lives and our finances.
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1. Reduce the number of bank accounts.
If you follow the latest changes among high-yield savings accounts, you may have accumulated a collection of bank accounts with small sums of money in most. Consider reducing your banking matrix to only the essential. I recommend keeping one interest-bearing checking account at a convenient location and one online savings account, but you may want to simplify even further by maintaining only a checking account.
2. Merge your investment accounts to one location.
I didn't have cash up front to fully fund my first Roth IRA, so I created an automatic investment plan at a brokerage with no minimum investment amount. In subsequent years, I preferred to invest a lump sum once a year. With cash available, I was able to meet the minimum investment requirements at a more favored brokerage. In addition, I have a number of non-retirement accounts spread out across several brokerages, including a few I opened to take advantage of account opening bonuses.
With investments spread out like this, I have to manage several extra forms when I organize my documentation for filing income taxes. It takes some work and possibly access to a notary public, but it is worthwhile to merge these accounts at your favorate discount brokerage as much as possible.
3. Eliminate unnecessary credit cards.
When you check your credit report for the first time from AnnualCreditReport.com, you may notice, like I did, you have several inactive credit cards. While canceling older cards could damage your credit score, considering keeping the oldest cards and consolidating your balances and credit limits. You may still need to avoid fees when transferring a balance from one card to another, so pay attention to the terms.
Use just one credit credit for all your spending, pay off the bill every month, and earn cash back or other rewards. If you're not in the position to use credit at this level, simplify your debt payoff strategy by prioritizing your credit cards.
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4. De-clutter your possessions.
It's easy to fill up a house with things you like. For the most part, music, movies, games, books, and electronics contribute to the enjoyment of your life. I'm not going to suggest extreme sparse living by eliminating everything you own, but there is an argument for getting rid of all but the most essential items. I am in favor of allowing the possessions that no longer bring joy to be recycled, re-gifted, or returned. For example, you can clean out your CD and DVD collection by selling them on eBay or Craigslist or by trading them in for Amazon.com gift certificates.
5. Optimize your records.
As a result of having too many bank accounts, investment accounts, credit cards, and possessions, you may find you have too much paperwork. Eventually you get around to filing papers, but there is a better system. All that's needed is a scanner and a shredder. After scanning important documentation, organize all your electronic documents and back up your files to an external hard drive or an online service.
Simplifying your personal finances is rewarding through a reduction of stress and clutter. You will have more mobility and flexibility, and if for any reason another individual needs to step in and help you manage your finances, it will be easier.
Luke Landes writes for Consumerism Commentary, where he encourages discussions about money and consumer issues. Consumerism Commentary regularly tracks and reviews the best online savings accounts and other financial products.