The Advantages of a Simple Plan

When people set out to make a budget or adhere to a financial plan, they sometimes make things so complicated that they have no chance of success. They set up accounts at many institutions, they open ten credit cards to maximize the rewards, they make too many rules about what can and cannot be bought, and they try to divide their budget into too many categories. As a result, they end up with a financial plan that is too complicated and that even they don’t understand.

When a financial plan/life is super complicated, you don’t want to deal with it. The thought of balancing all those accounts, paying all the different credit cards and dealing with the rewards, tracking all the budget categories, and adhering to all the rules is exhausting. You may only be able to keep up with a complicated plan for a month or two before you throw up your hands, declare it’s all too hard, and give up, leaving your finances to go their own way (which is almost never in the direction they should be going).

This is why it’s important to keep your financial life as simple as possible. The simpler something is, the more likely you are to keep up with it and actually live by that plan. When dealing with your accounts and your budget is easy and not too time consuming, you’re more likely to find time for it instead of putting it off. So how can you keep your financial life and plan simple? Here are some ideas:

Reduce the number of accounts: While it is advisable to keep your assets in multiple institutions to protect against the failure of one bank or having one account compromised, having too many accounts in too many places makes it easier to lose track of your money. Two or three banks and two or three investment firms is all anyone really needs. You can keep checking accounts at two institutions and a savings account with one of those institutions. If you need multiple accounts for tracking purposes, open sub accounts at the same bank. For better interest rates, you can keep an online savings account, too. Unless you have so much money that you are exceeding FDIC limits at your banks, there’s no need to have a lot of accounts. For your investments, keep your 401K account(s) at your employer’s firm and then open an IRA at another institution. Keeping the number and locations of your accounts to a minimum makes it easier to balance your books and keep track of where all of your money is.

Reduce the number of credit cards: The game the past few years has been to obtain multiple cards and then try to maximize the rewards for each. So you use the card that pays double miles for groceries at the grocery store and the card that pays five percent for gas at the gas station. Then you have one that rewards more for paying utilities with the card. And then you have the one that gives you triple points when you stay in a specific hotel. Even if you’re paying them all off every month, this is complicated. It’s a lot of bills to pay and a lot of rewards programs to keep track of. With the new regulations coming into effect, you’ll probably end up getting charged annual fees on some of these cards in the near future. Pick your best two or three cards and get rid of the rest. A good cash back card is great because cash can be used for anything. Save the cash and use that to pay for hotels, airline tickets, and other things you were getting from rewards programs.

Reduce your bills: Drop any service or subscription you don’t need or use. Why have all those bill pouring in every month (and why have to deal with them as line items in your budget) if you don’t even use the service or read the magazine subscription?

Simplify your budget: Stick with the big categories when laying out your budget. Food, housing, insurance, savings, utilities, pets, etc. are some common categories. I’ve seen people break their budget into minute categories and drive themselves crazy. I’ve seen food broken down into meat, produce, and drinks and clothing budgeted down to the socks and underwear. When people with budgets like this buy too many socks, they freak out. Just stick to the main categories and learn to handle each category as a larger entity.

Ease up on the rules: Some people set up their budget and say there will be no more eating out, no giving or receiving of gifts, or no buying of DVD’s or books. Most people can’t live within these kinds of restrictions. Instead, pledge to limit these things but still leave some room in your budget for the occasional purchase. Learn to accept that your budget is fluid and that if you spend a little too much in one area, you can recover by cutting back in another area. Also accept that not every month will go as planned and don’t try to micromanage every single month to the penny.

Keep yourself organized: Don’t let bills pile up and keep your records orderly. Keep things you know you’ll need for tax purposes in a special place so that, come April, you’re not ripping the house apart looking for receipts and statements. Pay things as they come in or on a set schedule every month. Throw away old statements and receipts you no longer need to keep them from interfering with things you do need. Doing as much as possible online will also cut down on the paper you need to store. Organization makes everything much simpler to deal with.

Simple is better when it comes to your finances. Unless you have a ton of money and special circumstances that make your financial life very complicated, you’re better off with less when it comes to accounts, budgets, and bills. Simple plans are easier to keep up with and make you feel more positive about dealing with them. An added bonus: If something happens to you, your relatives will have much less trouble making sense of a simple plan than a complicated one. Keep it simple for your sanity and the sanity of those around you.

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4 Responses to The Advantages of a Simple Plan

  1. Larabelle says:

    Amen sister!!!
    I totally agree!!
    I do not see how anyone keeps straight everything when they have a thousand and one different categories for their budget.

  2. snshijuptr says:

    I wish that free budgeting software would allow this. and Quicken Online force you to have a ton of different categories. I only need about 10 to cover everything. I don’t want to have to look at 20 different categories with 5 sub-categories each.

  3. Hilary says:

    I completely agree – I used to have a ton of savings accounts, and it was just way too much of a pain. I’ve finally cut it down to one checking account with a linked savings account, as well as a SmartyPig account with several “goals” within it. That seems to be a good balance to me.

    @snshijuptr I disagree that forces you to have a ton of categories. You can choose which you see and which you budget, and can just budget the “macro” categories rather than the “micro” ones.

  4. Gail says:

    Having too many accounts for IRAs can cost you if you have to pay yearly service fees also.

    For years I have been working at simplifying things and this year was the quickest I have gotten my taxes done for a very long time. I’ve started paying many things on line as that saves on stamps every month. I’ve had a simple notebook system in place for years now to make sure each bill is paid on time and because some only come yearly, I have learned at the beginning of the year to input those into their usual monthly spot so there is no surprises. It was a huge help this year when our business insurance bill got lost in the mail and I realized 3 days before it was usually due that we still hadn’t gotten an invoice. I was able to go on line and pay the bill on time, saving who knows how much misery and problems.

    Having a simple system and keeping up with the system makes it a habit after awhile that keeps you on your toes from spending when you know that you have other bills coming up that the money is earmarked for. Very tempting this year when our tax return came (this is rare for us) to go off an have fun, but since it had already been earmarked for certain projects, that is where it went. Simple, easy and no stress. Maybe we might get one evening out with it and since we haven’t been out in several weeks (our anniversary) it will be a treat instead of the usual hohum “its Saturday where do you want to go?” deal that many people seem to do.

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