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Five Ways to Simplify Your Financial Life

February 2012

Barbara O’Neill, Ph.D., CFP®
Extension Specialist in Financial Resource Management
Rutgers Cooperative Extension

Many people lead extremely busy lives. Between work, commuting, sleep, personal care, and family responsibilities, there is little time left for tasks such as financial management. Good organizational skills are, therefore, essential to get everything done in a limited amount of time. Want to simplify your personal finances? Consider the following five tips from the Federal Deposit Insurance Corporation (FDIC). Each strategy provides a small step to simplify your financial life.

  • Use Direct Deposit - Arrange to have regularly recurring income (e.g., paycheck, Social Security, and pension benefits) automatically deposited into a checking or savings account. Direct deposit is safer and more convenient than having a paper check mailed to you and then having to take it to a bank or credit union to deposit it. It may also help you avoid bank fees and gives you access to your money sooner than with a paper check. Direct deposit is also less expensive for those who issue the checks. For this reason, the U.S. government will only issue Social Security and other federal benefit payments electronically beginning in March 2013.
  • Automate Recurring Bills - Many merchants, including car loan providers, insurance companies, and utilities, allow their customers to pay regularly recurring bills with an automatic payment. The money needed to pay a bill can be automatically withdrawn from a checking account or charged to a credit card. Be sure to record all checking account debits (via written checks and/or a debit card) in your check register to avoid overdrawing your account. If bills are charged to a credit card, pay the balance in full by the due date to avoid interest charges.
  • Explore Online Banking - Whether you use online banking to actually pay bills or not, electronic access to your accounts offers a number of benefits. For example, you can review deposits and withdrawals, keep track of your balance, print off a copy of a cancelled check to document an expense, and transfer funds between accounts (e.g., from checking to savings). You’ll also be able to quickly identify any evidence of identity theft. Like direct deposit and automated payments, you’ll need to record transactions made online in a check register and regularly reconcile your account balance with that of your financial institution.
  • Make Saving and Investing Automatic - Consider ways to put saving and investment deposits on autopilot. For example, sign up to have a portion of each paycheck deposited into a credit union account at work. If you invest in stocks and/or mutual funds, sign up for an automatic investment plan where you can arrange to deposit a certain amount on a certain date (e.g., $50 on the 15th of each month). By investing automatically, you’ll be following a strategy called dollar-cost averaging, which can result in a higher return over time than trying to time the market.
  • Consider Consolidating Accounts - If you have a number of accounts spread across multiple financial institutions, consider consolidating them. By doing so, you’ll reduce mail (e.g., bank statements and 1099 forms at tax time), lower account management fees, and perhaps get better rates of return. Consolidating accounts also makes it easier to monitor your investment portfolio and ensure that your money is properly diversified. For older adults, consolidating accounts will make it easier to determine required minimum distribution (RMD) withdrawals from tax-deferred retirement savings accounts such as a traditional IRA.