As the pace of modern society quickens, people are just busier. This busyness can easily overtake your time, your money and ultimately your happiness. Nowhere is that more true than with your finances. As we accumulate more wealth, our finances can become more complicated, and the complexity can begin to control our lives.
Simplifying our finances can be a freeing experience, one that can bring us peace of mind. As Isaac Newton said, “Truth is ever to be found in the simplicity, and not in the multiplicity and confusion of things.”
There are many steps we can take to simplify our finances. I’ll discuss a number of them in upcoming articles. To start with, here is a big one: Reduce the number of bank and brokerage accounts you have.
Consolidating Bank and Brokerage Accounts
A common source of financial complexity is holding money and investments at multiple banks and financial institutions. Maintaining savings and checking accounts at several different banks means multiple statements to review, file and store. Add in multiple IRAs, 401(k)s and brokerage accounts and you have a lot of monthly record-keeping as well as year-end forms to gather for tax time. At Blankinship & Foster, we are big proponents of consolidating bank and investment accounts as well as limiting the number of credit cards you have.
Why less is more
Banks encourage people to open new accounts by offering higher saving account interest rates for new accounts. Chasing those higher interest rates by opening several new accounts may seem harmless, but there is a price: you can end up with multiple bank accounts, which in turn causes more noise in our lives and more things to keep up with. We recommend you limit the number of checking and savings accounts to one checking account and one savings account for personal and one of each for business.
An exception to having one savings account is if your savings exceeds the FDIC insurance limits which are $250,000 at any one bank. In order to have amounts over $250,000 insured, you can maintain accounts at more than one bank. For very large balances, you can use a service that helps you manage multiple bank savings accounts in a consolidated way.
As with banking accounts, it’s best to consolidate your investments into few accounts with one custodian. Combining your various retirement accounts (401(k), 403(b), 457 accounts) into one IRA can greatly reduce complexity, and can help your investment results as well by having a more clear investment strategy, possibly reducing fees and enjoying a higher level of service. It can also make taking Required Minimum Distributions from your retirement accounts much easier.
These same principles apply to credit cards. The more cards you have, the more you need to review, file and store. And you have more bills to pay. Limiting the number of credit cards will save you some time, and possibly some fees and interest charges as well.
Read Part II in this Simplifying Your Finances series: Embracing Technology
We can help you simplify your finances
If you feel you have too many financial accounts or too much complexity in your financial life and would like to simplify, please contact us. We specialize in helping busy people make their financial lives easier through sound financial planning. With an integrated and unified financial plan in place, you can have more clarity and more of the peace of mind we all desire.