You can simplify your finances by making a few changes to cut the clutter and streamline your monthly bill paying. Your finances should be easy to administer with few moving parts.
Most people have too many accounts that makes it hard to monitor. They also don’t have a systematic way to pay their bills and manage their finances with the least amount of fuss.
And when companies breach our personal and financial data daily it’s best to scale back and develop an easy system to track any suspicious behavior or unwanted charges.
1. Use One Checking and One Savings Account
Use one checking account to deposit your paychecks and pay your bills. You should keep enough money in the checking account to pay your monthly bills and to cover cash withdrawals during the month.
The bank or credit union should allow you to program electronic and automatic payments. Their ATMs should be convenient and fee-free. And it should have an easy to use app for your smart phone.
If you have two or more checking accounts, close the one you don’t need any longer.
Spouses often have their own checking accounts and one joint checking account. I believe each couple should make their own decision on how to handle their money. My point is to reduce the number of checking accounts to make it easier to manage your finances.
You should also have one savings account. This account should hold your emergency fund. Preferably it should be at a different bank than your checking account.
Distance makes it harder to raid the account. Many credit unions and online banks such as Ally or Synchrony also offer better savings rates than traditional banks. So take advantage of the higher rates and cut the temptation to use your emergency fund on a whim.
You can also have your paycheck deposited into your checking and savings accounts. Automatic deposits to your savings account are an easy way to build your savings because you never see the money.
That’s it – two accounts.
2. Maximize Rewards on One Credit Card
I am a fan of using credit cards to get points and rewards. In fact, I charge everything on my airlines credit card so that my flights are free. It took me a while to feel comfortable charging the midnight $5.99 Ben & Jerry’s but I’ve gotten over it!
Avoid store credit cards or other credit products. They only try to sell you more stuff that you probably don’t need. And having more accounts increases your risk for identify theft/fraud (remember the Target data breach?).
Maximize your rewards by setting any recurring charges to your credit card. So your gym charges, Netflix, cell phone bill all can help you get cash back, obtain more points, or buy free airline tickets.
If you have many credit cards, don’t necessarily close them. Doing so may lower your credit score. Rather use only one card to simplify your finances and leave the others ones dormant. You may also want to remove them from your wallet to lessen the lure to use them.
3. Sit Down And Pay Your Bills Once a Month
Once armed with your two bank accounts and one credit card it’s time to simplify bill paying. Bill paying should be a once-a-month task. Set a time each month (e.g., the last Friday of every month) to review your finances.
Make a list of each bill and when it is due. Then program electronic payments from your checking account so that each bill is paid the day before the bill is due. Don’t pay them when they send you an email or a paper bill. Put them in a folder and deal with them at your designated once-a-month time.
I pay my electric bill on the 5th, my natural gas bill on the 8th, telecom on the 15th, and water on the 26th. My mortgage is due on the first of the month and my credit card is due on the 2nd. I program them at one sitting and then they are done.
I don’t allow the vendor (the utility company for example) to debit my account. Rather my bank sends my payment to them.
At your once-a-month review also pay the one-off charges due that month such as car registrations, semi-annual insurance payments, estimated tax payments, your financial planner, etc.
I also am a fan of budget billing. With budget billing, the company bills you the same amount each month. This makes it easier to budget especially for things like gas and electric that can vary wildly from season to season. At the end of the year, the vendor trues up and adjusts the payment for the next year.
Because I am a bit of miser and don’t have many unexpected charges, I leave only a little cash in my checking account after each bill is actually paid by the end of the month. My checking account is just waiting for me to replenish it the next month.
But you may want to hold an amount (e.g. $500 or $1,000) to make sure you don’t accidentally over draw your account. It is your choice.
4. Scrutinize your Paystubs and Bills
As part of your once-a-month sit down, review your paystubs and bills. Mistakes abound on paystubs and bills.
You should understand each deduction on your paystub. This is especially important to review when you start a new job or have an open season and change your benefits. Payroll departments often make mistakes. Its easier to correct them early on then having to address them later.
Look at your bills each month as you set up their auto payment. Make sure there are no extraneous charges, recurring charges that you’ve cancelled, etc.
You must be vigilant but I urge that you do it only once-a-month at your monthly sit-down. Don’t try to deal with your bills during the month.
It shouldn’t take you but 20-30 minutes each month as you become accustomed to the bills and statements. You’ll spot problems immediately and address them quickly.
In sum, use one checking to manage your finances once a month, scrutinize your bills and statements, program your payments, and maximize your credit card use.