Here's a little financial Apartment Therapy to get you going this spring. You've probably already started thinking about switching out your closet for the new season, tackling the boxes looming in your garage or dealing with the "junk" drawer in the kitchen that's become far too full.
But in your spring cleaning craze you may have forgotten one of the most essential ways to "de-clutter your life: Simplifying your finances. This can save you tons of time and effort --- and, of course, money -- in the coming years.
Ick, you might be thinking -- I don't have time to deal with stacks of account statements, old retirement accounts, and credit cards I barely ever use anyway. But it can be quick and pretty painless to de-clutter your finances. Follow these five steps, and you'll be on your way to a simplified financial life in no time.
1. Consolidate your retirement accounts
If you're like many American workers, you may have one or more 401ks or 403bs left behind with old employers. These can be a time-drain when you have to manage and track each of the accounts separately. To fix that, consider transferring (called "rolling over") these accounts into an Individual Retirement Account (IRA). You'll save time and get better investment choices (most company 401ks have limited choices). A rollover may also help you save more for retirement by reducing plan fees over the coming years. To learn more about a 401k rollover to an IRA, and to compare options, check out where I work at www.IRAmarket.com.
2. Simplify your bills
Many companies allow you set up automatic payments for everything from your cell phone to electricity to cable bills. If you haven't already arranged to do this, do it now. This way, you to never have to worry about paying your bills again, and you avoid those pricey late fees. (Of course, if these automatic payments all go onto your credit card, just be sure to pay that off in full each month.) Once you've done that, consider asking the companies to stop sending you paper statements. This will reduce the clutter in your house, and you can always just look at your account online if you have any concerns.
3. Find the right credit card(s)
Look in your wallet. Do you have multiple credit cards, some of which you barely ever use? If so, it might be time to ditch your unwanted cards. Don't cancel them, as this can ding your credit score; instead just cut them up and never use them, unless they have an annual fee, in which case it's worth it to cancel them. Once you do that, consider whether the cards you do have are the best ones for you. If you never carry a balance on your card, do you have a rewards with good cash back perks (some cards give up to 5% cash-back on certain categories of items) or travel rewards? If you carry a balance, do you have a relatively low-interest rate card? To find the right card for you, check out NerdWallet.com. There you can answer questions about your spending habits, and the site recommends the best cards for you.
4. Sell your old gift cards
If dear old Aunt Sally always gives you a Talbots gift card for the holidays but you're more of a J. Crew kind of woman, why not earn some money for those unwanted gift cards just taking up space (and making a mess of!) your wallet? To do it, check out PlasticJungle.com, where you can hawk your gift cards for cash.
5. Automate your monthly savings
Most of us know we're supposed to save for retirement and for emergencies. Advisors recommend about six months of income for an "emergency fund." But while our employers make it easy for us to save for retirement by automatically diverting part of our paychecks into our 401ks, most of us struggle with how to regularly save for all the other stuff we want. That's why it's essential to "make it automatic." If you get direct deposit from your employer, go online to your bank account and set up a repeating transfer to move a certain amount of each check into savings on the day after the money hits your account. This way, you'll never forget to save again. Best of all, you won't be as tempted to spend that cash since it's already moved out of your main account.
Good luck with the spring cleaning and keeping your finances organized all year.
By Catey Hill, lead writer at IRA Market
(Image: "Woman & Abacus" image via Shutterstock)
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I wouldn't just cut up and never use a credit card you don't want to use -- eventually they go dormant and doesn't help your credit score. Put very small amounts on it periodically (I use mine for occasional splurges on Amazon) and then pay it off immediately. This keeps the card active and helps your credit score by keeping the total amount of credit available to you high.
If you live in Canada and Rogers is your internet/cable/phone provider, do NOT sign up for automatic payments for those bills. Rogers is notorious for billing errors - specifically overcharging and adding services for customers without their knowledge.
I prefer setting up online accounts so I can pay online rather than automating payments. the only ones I automate are my mortgage and previously my car insurance. Now we pay our car insurance all at once to save money.
Also I don't think you need to keep using credit cards to up your score, but I think it's better to cancel your account than just destroy the card.
Overall great tips but a cautionary tale worth sharing, my friend setup auto-payment for her monthly electric & gas bill, the company made a mistake and processed her monthly bill by a factor of 15,000x the payment. It wiped out her account. Because she had given them PERMISSION to access the account, she had no legal standing to demand a refund (the laws just haven't caught up with auto-payments yet) and the company refused to make the necessary correction, it wasn't until the state's attorney general & her senator intervened that the electric & gas company fixed the mistake and restored the money to her account (some 120+ days later). I'm all for paying bills online but I'll never give anyone auto-payment access again after seeing what my friend went through!
I used to work at a market research company, in the credit offers mailing section (thrilling job), and from what I learned there, canceling your card does negatively affect your score because companies are required to report that. If you keep it open, whether or not you use it won't change anything. After a while the credit card company may write you off internally as a cardholder, but they want to keep their numbers high for the public so they won't report you to a credit agency.
And whoa, I use auto bill pay for everything possible. The above story made me rethink that.
I just did this! It's so refreshing. My last steps are to call my credit card company to see if they can lower my interest rate and increase my credit limit, consolidate my retirement accounts, open a new credit card with better travel rewards, and fire my incompetent financial advisor.
One of the best things I did was review my monthly/yearly subscription fees. Once I added up how much I was spending on subscriptions - magazines, Instapaper, Backblaze, hosting, Netflix, Hulu, Spotify, Birchbox, gym membership that I never used, etc - I took an axe to 90% of them and only kept what was important and used most frequently. I also evaluated the plan level and dropped some of them to cheaper plans.
I've been thinking about this lately as well. My issue is that my savings account is a mix of emergency savings, and planned spending (like upcoming travel). I'm going to apply for a tax free savings account for my long term/emergency savings, and then use my regular savings account for things like travel, car maintenance, insurance, etc.
It's a bit less simple, but at least I'll know exactly how much is reserved for emergencies, and how much I have for upcoming expenses.
As alternative to having your vendors automatically take money out of your account, I actually have my account automatically PAY my vendors each month. I have set it up for everything that has a fixed payment every month...and in my town, our utility company allows fixed monthly payments based on estimated usage. Then nobody has access to my account except me and my bank!
I think my financial life is pretty simple. I automatically deduct savings from my paycheck, keep my credit card balances low, and know pretty much to the penny how much is in my checking account. I don't trust vendors to deduct from my checking account. It's that simple. I don't trust them. I review the bill and pay it online, but it's with my personal authorization every time.
JasmineIsDomestic - that is a huge issue with Rogers.
Also watch out for credit card companies; my friend got nailed by a credit card changing the due date without letting her know - the autopayment she'd set up missed the date, and BAM, up to 28% interest (instead of the low intro rate) because she'd been late once.
I agree with most other posters that you need to be cautious about who you allow to pull automatic payments. My husband is a loan officer who has helped many a customer rectify issues with automatic payments. Also, it might be to easy to forget the money is coming out, and you could overdraw your account.
i don't like auto pay either. i'd rather tie the bills with my CC to pay on-line than auto pay. if there's a dispute, i can hold off payment.
financial planning works really well for big ticket items. I always sock away a fixed amount each month for a future car (living in Los Angeles, a car is a must). typically i'd save for 7 years, that's when my current car (always buy 2 or 3-year old car, never new car) is up in mileage, to start shopping for a new used car. this way i have bargaining power with a stack of cash and no car loan. if i find the car in a dealership that wants a car loan to give me the price i want, i'd get a loan and then pay it off with cash right away.
i'd do the same with vacation $, too, saving a bit each month for a 1 or 2-week annual vacation. if i didn't go or did not spend it all, it goes into next year's vacation funds.
if u anticipate major dental/medical work, this also applies.
I've actually been very lucky using automatic payments with Rogers. They haven't overcharged me once in 3 years. The only service I have with them is wireless, and I stay well within my monthly limits, so that probably helps.
I used Plastic Jungle for the first time this year, sold back 4 cards, and got a check a few days later in the mail for $128. I was skeptical at first, because like...getting checks in the mail for used giftcards...? But, it's real, and it worked! It's also a cool place to buy gift cards at a discount, though often the amounts are high--however, if you're going to spend at a place like Home Depot anyway, why not buy a $250 giftcard for $220 and save a little?
A few savings recommendations that I've found really helpful:
1. Open a high yield savings account (Ing, for example) for your long-term savings, and set up automatic transfer. You can designate a portion of your direct deposit, or just have it automatically transfer on whatever schedule works for you.
2. Transfer money to your savings at the BEGINNING of every pay period. I know that I often evaluate splurges/unnecessary purchases based on how much is in my checking account at that moment and what expenses I know are coming up in that pay period. Transferring money out first means I am more likely to save it. If I have an unexpected necessary purchase, I can easily transfer it back.
2. Transfer any money left in your checking account directly into your savings account at the end of every pay period. If you have a good sense of how much you spend on standard living expenses plus whatever you budget for extra, it's pretty easy to transfer just about everything else to savings at the beginning of the pay period. But if you're conservative with your initial savings-transfer, just stick any extra at the end of the two weeks/month/etc. into your savings again. I'll be doing this tonight!