April 13, 2024
Finance

3 Smart Ways to Simplify Your Finances in 2024


Some people try to avoid thinking about money at all costs, which isn’t good. Surprising as it may be, it’s also possible to have the opposite problem. You can spend too much time on personal finance, to the point where it has a negative impact on your life.

Maybe you have a complicated web of bank accounts, credit cards, and investment accounts to manage. Or you’re always looking for ways to optimize your finances and squeeze out another dollar of interest here, and a rewards point there. It feels like you’re doing the right thing, but having overly complicated finances actually holds you back.

For one, it can be stressful to stay on top of so many accounts. It’s also time-consuming. In fact, Americans who engage in financial planning regularly spend an average of 54 minutes per day on it, according to research by The Motley Fool Ascent.

If you simplify your finances, you could only need an hour per month, not per day. Here’s what you can do to manage money better and take back your time.

1. Use fewer accounts

This is something I’m working on this year, so I understand exactly how easy it is to get bogged down with too many accounts. You open new credit cards because they’re offering big sign-up bonuses. You add new checking and savings accounts because of bonus offers or higher APYs.

But each new account means another statement you need to review every month. With credit cards, it also means another bill to pay, more rewards to manage, and so on.

Go through all your accounts and see which ones you use the most. Consider closing any bank accounts and credit cards that you don’t use regularly. If you want to simplify as much as possible, trim it down to:

With investment accounts, it depends on your situation and the options you have available. A 401(k) is a smart choice, if your employer offers this. You may want to save more for retirement with individual retirement accounts (IRAs) or Roth IRAs. If you want to invest outside your retirement accounts, you can do so with a brokerage account.

Once again, keep it as simple as possible. It’s fine to have a 401(k), IRA, Roth IRA, and a brokerage account. But there’s no need to have accounts with four separate stock brokers.

2. Automate everything

Once you know which accounts you’ll use, it’s time to make everything automatic. That includes saving money, paying your bills, and investing.

Start by deciding how much you want to save and invest every month. Make sure to choose amounts you can afford. After you’ve done that, here’s how to automate your money management:

  • Have your paychecks direct deposited to your checking account.
  • Save automatically. Create an automatic transfer for the amount you want to save from your checking account to your savings account.
  • Set up automatic investments through your retirement/investment accounts.
  • Set up automatic payments on your bills. Use your credit card as the payment method if it’s accepted, and use your checking account if it isn’t.
  • Auto-pay your credit card with your checking account. Make sure to set it up to pay off the entire statement balance each month, so you’re not charged any interest.

Do that, and you won’t need to make all your bill payments manually anymore. You also won’t have to worry about missing a payment and getting charged a late fee.

When you’ve automated everything, it significantly reduces how much time you spend on your finances. All you need to do is check in on occasion to make sure everything is going according to plan.

3. Stick to passive investments

Some investors like to have full control of their portfolios. They pick every stock, and maybe even dip into more advanced strategies, such as options trading. The hope is that by managing every investment, they’ll have above-average returns. Or better yet, get filthy rich.

But it’s hard to beat the market. The S&P 500, an index often used to measure the market’s performance, posted a 24.23% return last year. An analysis of eight hedge funds found that only one did better than the S&P 500. And those hedge funds, most of which don’t beat the market, are run by professionals who devote their careers to investing.

For most people, devoting lots of time to an investment portfolio isn’t worth it. Instead, go with passive investments that you can just add money to every month. Here are a couple of options:

  • Index funds: These aim to follow the performance of a specific market index. You could invest in an S&P 500 index fund or a total stock market index fund. Your portfolio’s performance would be in line with the performance of the U.S. stock market as a whole.
  • Target-date funds: These are investment funds set up for a specific retirement year. For example, if you want to retire in 2060, you could invest in a 2060 target-date fund.

Spending a ton of time on your finances doesn’t necessarily mean you’ll get better results. When you have everything set up well, you can take a hands-off approach and devote more time to other areas of your life.

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