5 Ways to Simplify Your Finances in 2015
But with personal finances, simple often really is better. Very simple advice will get you to financial success –- if you follow it consistently. That's the part that trips up many -- sticking with the simple stuff long enough to let it work for you.
Because the new year often means new resolutions and goals, I wanted to share my thoughts on simplifying your finances in the new year:
1. Get Organized
Many of us have a ton of financial paperwork lying around without a clear system. If you like paper, have folders for tax documents, bank accounts, retirement accounts and insurance documents. If you're anti-paper (like me), then start gathering, scanning and shredding. Use an online filing system.
2. Streamline Your Accounts
Did you recently open a checking account but have yet to close your old one? Do you have an old 401(k) from a job change but you haven't done a rollover yet? It's time to cut back on the number of accounts you have. Ask yourself: which accounts can I close, combine with another account or roll over?
While I enjoy having multiple savings accounts at the same bank for different goals –- to keep the emergency savings separate from the vacation fund -– I think that simplifying your finances starts with being able to track your money.
3. Simplify Your Budget
Look back at your yearly spending. List all your recurring monthly expenses. Is there anything you can cut? Can you switch to a less expensive service? I imagine that you'll find a few.
Do you have any big purchases on the horizon that you need to start saving for now? Work that into your budget. Add up the amount of the recently slashed expenses and set up a monthly transfer to your savings account for emergencies.
%VIRTUAL-pullquote- The only number you need to track is your new weekly spending amount. %After adding up your recurring monthly costs and your savings goals, how much money is left? Let's say your net pay is $4,000. Your recurring costs are $2,000 and your savings goals are $1,000. This means you have $1,000 left for all other living expenses (gas, groceries, eating out, shopping, kids' stuff, etc.) Divide this number by four to determine your weekly spending amount: $250.
This is where the magic happens: the only number you need to track is your new weekly spending amount. You take out $250 cash every Friday (or transfer this into a different checking account), and when it's gone, it's gone. No more worrying about spending less on groceries but more on clothes. No more beating yourself up for past purchases. You have one number to focus on. This is how you budget forward instead of budgeting backward.
This system also allows you to do this: if it's Thursday and you have $75 left for the week, you can go out to dinner and a movie. You did a great job budgeting that week, so you can reward yourself.
4. Automate Your Savings
It's time to get in the habit of saving every month, but don't let yourself ruin your savings goals. Instead, it's time to make your savings automatic. You can do this by setting up a monthly transfer, or by changing your direct deposit so that you have a portion of your paycheck sent directly to your savings account.
5. Increase Your Retirement Contributions
Use this system with your retirement accounts as well. Start a Roth IRA and set up monthly contributions. The new year is a great time to bump up your 401(k) contributions by 1 percent. This change is so small you'll probably hardly notice the difference in your paychecks.
And if you received a pay bump, why not give your future self the raise and increase your 401(k) contributions?
Put It Into Action
Now it's time to put it all together: start the new year right and find a system to organize your financial documents that works for you! Next, it's time to streamline your accounts, simplify your budget, automate your savings and increase your retirement contributions. By setting aside some time in January to do each of these tasks, you'll simplify your finances for the rest of the year. May 2015 be a prosperous year for you.
Sophia Bera is a virtual financial planner for millennials and the founder of Gen Y Planning. She is location-independent but calls Minneapolis "home." She offers a free Gen Y Planning newsletter and is getting ready to publish her first ebook to provide a Gen Y guide to empowered personal finances.