Life can be stressful enough without adding juggling finances to the mix. It is possible to simplify your financial life, however, and doing so can free up time and ease certain financial worries. Here are five easy ways to make managing your finances simpler.
Consolidate Your 401K
The average American stays at a job for only about 4.6 years before moving on. When changing companies, people often fail to take their 401K with them, resulting in them having multiple 401k accounts. Rolling over your 401K to your new job allows you to consolidate and track your money in one account. If you fail to do so, you’ll be receiving statements and tracking accounts from multiple companies and plan administrators. Instead, take your retirement money with you. It will be easier to track and you won’t lose any along the way.
Just be sure to follow the rules and use a direct transfer from one account to another. If you have the money in your personal possession you can end up paying taxes and penalties. According to an article in U.S. News, “If the 401(k) balance is paid to you, 20 percent of the balance will be withheld for income tax. Then you will have 60 days to put the entire distribution, including the withheld 20 percent, into a new retirement account. If you fail to make the deposit within two months, you will have to pay income tax, and if you’re under age 55, you will have to pay the early withdrawal penalty.” Note: The general age that you can withdraw money without penalty is 59 ½ but under certain circumstances, i.e. if you left your employer in or after the year in which you turned 55, you may not be subject to the 10% early withdrawal penalty. But it is best to not take any chances and just have the money transferred directly from one retirement account to the next.
Stop Playing Day Trader
In this world, there are a handful of people who can jump in and out of the stock market constantly and make a killing doing it. You are probably not one of them. Make an investment only if you are prepared to stick with it long term. Otherwise, the stress of constantly watching and moving your money will complicate your financial life and add angst to it. Better yet, hand your investments over to a financial planner who can manage them for you so you need not worry.
Rent
This tip is not for everyone since owning a house can be a wise financial investment, but it does add to your expenses and your stress and it takes time to maintain. When renting, you don’t need to worry about unexpected costs such as appliance repair or roof leaks. You’ll know exactly what your housing expenses are each month and the cost of repairs will be a burden for your landlord rather than your checking account. If owning a house is more anxiety than it’s worth, you can choose to let someone else worry about it and rent instead.
Another option somewhere between renting and owning a home is to own a condo or Townhouse instead. In a condo you only own the inside of the building you live in, the condo association owns and is responsible for the outside. (You pay a monthly fee to the association to maintain the outside for you). In a Town-home you own the outside as well as the inside, but pay the association to maintain certain common areas.
Automate It
Simplify your finances by automating them. While it’s important to check your credit card statements and checking account for fraudulent charges, recurring payments can be automated to make life simpler. Set your banking up so that your car payment, insurance payments, rent, mortgage and other consistent bills are paid automatically each month. The money is simply transferred from your bank account to your creditor’s on the designated date each month. This allows you to pay your bills without wasting time writing checks and eliminates the possibility of forgetting to make a payment.
Get Rid of It
The key to simplifying is to get rid of what you don’t use. If it is a small item like clothing or “Bric-a-Brac” you can donate it to a local charity like Salvation Army or Goodwill. If it is a car, camper, boat or trailer, consider donating it to a charity like Action Donation Services. They will come and pick the item up and then sell it. In return, you get a tax break and get rid of an eyesore you no longer need.
The same is true of credit card accounts. Don’t keep more cards than you need. Close and consolidate what you can to limit your risk of identity theft and reduce the number of accounts you’re keeping track of. Skip this advice if you’re carrying high balances, though, as closing accounts could negatively increase your debt-to-limit ratio. (Of course, high balances are another source of stress so you should strive to eliminate them as well, but that is another topic.) See:
- Rebuilding and Fixing Your Credit in 5 Steps
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Using Credit Cards Can Make Or Break Your Financial Situation
It’s that simple. Put these tips into practice and at least some of your financial stress can be reduced and life will be just a little bit simpler.