Have you found finances to be among the most complicated things in your life? If so, you are not alone. Fortunately, with a little bit of effort and a few changes here and there you can simplify your financial life and eliminate many of the money related problems that you have had in the past. Below are five tips for taking a minimalist approach with your personal finances:
1. Fewer accounts: When you have too many credit card and bank accounts you will quickly find that you are confused, disorganized and making financial mistakes time and time again.
With fewer accounts it is much easier to stay organized and ensure that you know what you are doing with your money, no matter if you are spending or saving. Far too many people believe that “more is better” when it comes to financial accounts, but in reality, the opposite is true. If you buck this trend and begin to cut back by consolidating cards and accounts, you will notice an immediate improvement in terms of managing your money.
2. Less spending, more saving: Does it get any easier than that? When you spend less you can save more. And when you save more you will be more confident in your personal finances. However, this may be easier said than done, but those who can live within their means usually find themselves in a much better place in the end.
Tip: start out by cutting back on one expense per month, such as going to the movies or eating out. At the end of the month, count up all the money you saved. Once you see just how much you’ve saved, you will be hooked!
3. Cut back on installment loans: Unfortunately, this is not something you can do overnight. That being said, with dedication you can make this happen sooner than you ever thought possible.
Common installment loans include auto loans, home mortgages, and student loans, all of which requiring you to pay a certain amount on each loan per month. Subsequently, there is always money coming out of your bank account, especially if you have multiple loans. By cutting out just one of these loans, you’ll free up more money in your month to month budget, which means you can get out of debt faster and start putting more money aside for a rainy day.
4. Use cash, not credit: In our first tip you learned about the importance of eliminating unnecessary credit card and bank accounts. Although keeping one credit card for emergency purposes is always a good idea, this does not mean you have to use it.
One of the most common ways to optimise your personal finances is to put away your credit cards and rely on a cash based system. To get started, allot a particular amount of money every month to each type of expense. For example, you may set aside $100 for gas, $50 for entertainment, etc. When this money is gone you have to find a way to get by until the next month.
Although this may be a major change, once you get on the right track you will breathe a sigh of relief. It teaches you the value of money, and how to manage spending it properly – both are extremely important lessons to learn in life.
5. Automate your finances: How much time do you spend every month paying bills, moving money around, and staring at your bank account statements? Many people waste hour after hour, month after month, on these monotonous tasks when they could be doing something much more rewarding.
Here are several things you can do to automate your finances:
- Setup automatic bill pay for everything from your car loan to your mortgage and utilities.
- Have a certain amount of money from your paycheck deposited into your savings account. When you don’t see the money you can’t spend the money!
- Pay several months in advance. If you have the money, for example, you could pay your car insurance 6 or 12 months at a time.
Submitted by Andy Boyd, author and editor of the Credit Letter blog. Andy has also analysed and reviewed many Australian credit cards to help consumers and businesses when it comes to comparing and applying for a new credit card. Outside of work, Andy enjoys travel and extreme sports.