Ten ways to simplify your life in 2008
With a little upfront effort, you can streamline how you bank, pay bills and track your money. Now is a good time to set up a financial system that will pay off all year long.
By Liz Pulliam Weston
January 03, 2008
It's not your imagination. Managing your money is getting harder.
You have to make a lot more decisions than folks did a generation or two ago.
Instead of one insurance plan, you may need to choose from half a dozen -- if you can afford coverage at all. Instead of an employer-provided traditional pension, you have to manage your own RRSP and figure out not only how much to save but how to invest.
Instead of a single credit card with a relatively low rate -- all that was available to most households in the 1970s -- you probably have a wallet full of options, all with different rates, terms and due dates to monitor.
Talk back: What are your financial goals for 2008?
Fortunately, technology is riding to the rescue. Used properly, it can help you stay on top of your money with minimal effort. These tips from my latest book, "Easy Money: How to Simplify Your Finances and Get What You Want Out of Life," should help you streamline your financial life:
Simplify and de-clutter
Use direct deposit. This should be a no-brainer, but about a quarter of the people who are eligible for direct deposit of their paycheques in the U.S. don't sign up. Perhaps it's an irrational fear of electronic transactions holding them back, but they should get over it. Direct deposit is easier, faster and safer than running around with a live check in your wallet.
Get true overdraft protection. Real overdraft protection links your chequing account to a savings account, line of credit or credit card. Money is drawn from one of these sources if you write a cheque or initiate a debit card transaction for more than you have in your account. The annual cost is reasonable -- $20 to $50 is typical -- and you may pay another small fee anytime you use the overdraft.
What you don't want is "courtesy overdraft" or "bounce protection" that many banks and credit unions automatically offer their customers. That "service" can cost you $30 to $40 every time you make an over-limit transaction, and those fees can add up quickly. One reader racked up more than $200 in bounce fees buying songs for her MP3 player; each 99-cent tune triggered a $30 fee.
Consolidate your accounts. Clutter isn't limited to the tangible stuff in your home. You also can create financial clutter when you have accounts all over the place. Too many accounts make it harder to adequately monitor your money, and you may pay more account fees than if you were able to maintain higher balances in fewer accounts.
For example, you could:
-Roll RRSPs from previous employers into your current plan.
-Combine taxable brokerage accounts. If you have different goals for the various accounts you have now, you could consider maintaining separate accounts but at least consolidating them with the same brokerage house.
-Trim your credit cards. The more cards you use, the more due dates and interest rates you're forced to monitor. If you pay off your balances in full, consider carrying just one card in your wallet, with another at home as a backup. If you're carrying credit card debt, consider leaving all your cards at home. Don't close accounts, since that could hurt your credit scores, but stop using them until you've retired your debt.
Consider two chequing accounts. Consolidation isn't always best. If you have trouble figuring out how much money you can spend and how much needs to be reserved for bills, consider the two-account system. This takes a little effort to set up and monitor, but done right you'll eliminate uncertainty about whether you can cover your bills. What's left in the first account is the cash that's available for spending on clothes, eating out, etc.
A schedule for success
Set up a high-yield savings account. Saving for retirement and paying off credit card debt need to be the first and second priorities for most folks. Once you're on track there, though, you should consider building up an emergency fund, and today's high-rate online savings accounts can help you accomplish that.
Create alerts. Banks, brokerages and credit card companies will send you e-mails to alert you to all kinds of events: when your checking account drops below a certain level, for example, or when your credit card payment is due. Get online access to your accounts and explore the possibilities.
Move your due dates. If you have too many bills falling due at the same time, see if you can shift some to another time of the month. Some credit card companies, for example, will allow you to pick your own due dates.
Create a bill calendar. Even if you have e-mail alerts, you still should have all of your bills' due dates mapped out on a calendar. This can be a calendar on the wall, on your desktop or on your phone. The only requirement is that it be a calendar you look at daily. You're responsible for paying your bills even if you don't receive a statement, and this calendar can help make sure you don't wind up paying unnecessary late fees or inadvertently ruining your credit. (A single skipped payment on a credit account can knock nearly 100 points off your credit scores.)
Pick the no-brainer options. If you really love picking individual stocks or researching the heck out of your mutual fund choices, be my guest. If you want an easier route, though, seek out funds that do the heavy lifting for you. "Life cycle" and "target date maturity" funds not only choose the investments but re-balance them regularly so you don't have to mess with figuring out how much of your retirement fund to put in stocks and how much in bonds.
Don't procrastinate -- aggregate
Monitor your money. People who wait for their statements to arrive in the mail typically catch fraud later than those who monitor their accounts online, according to Javelin Research & Strategy, an online research firm. Real-time access to your accounts can help you prevent overdrafts and over-limit fees, too. You can try bouncing from site to site to check all your accounts, but you have better options.
Your bank may offer account aggregation, which allows you to view accounts held at other institutions. Personally, I prefer personal-finance software programs like Microsoft Money and Quicken. These programs, which live on your computer rather than online, allow you to automatically download transactions and keep track of your finances while providing some powerful financial-planning software. The most recent versions have vastly improved cash-flow-forecast features, which can show you in advance when your chequing account is about to run on fumes. (Microsoft is the publisher of Sympatico / MSN Finance.)
Each of these 10 options requires some upfront effort on your part, but after your systems are in place you'll be able to stay on top of your money in just a few minutes a week. If that isn't a worthwhile goal for 2008, I don't know what is.
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