Imagine your finances are like a house: Having multiples of one item or piles of stuff lying around wouldn’t make it very nice to live in. But a clean and organized house, on the other hand, is much more enjoyable and can give you freedom to achieve your goals.
If you’re in need of a financial fresh start, these five tips can help you get back on top of your money and feel more in control.
Tip #1: Identify where you are and why
Before you start organizing, stop and assess: Where do you actually stand? Are you just a little behind in dealing with bills and payments? Or are you so overwhelmed that you can’t bear to face your bank and credit card statements?
According to Bright Dickson, Truist positive psychology expert, many people avoid decluttering because of embarrassment and other negative feelings. “There may be shame around how you spend, or the feeling that you don’t have enough. And it can be really hard to face that,” Bright says.
It’s important to examine those feelings to begin to face them and overcome them, says Dickson. Only then can you declutter your finances successfully.
Tip #2: Follow the one-to-two rule
Not sure how to even begin cleaning up your finances? Brian Ford, head of financial wellness at Truist, has a simple solution: Don’t have more than two of anything. “Don’t have more than one or two insurance companies, credit cards, or checking accounts,” Ford says. This will minimize the number of statements you need to look through and the number of apps you need to download. Pare things down so you don’t get burned out on making multiple financial decisions.
Tip #3: Close old accounts
How do we go from having a wallet full of credit cards and a jumble of bank accounts to just one or two of each? Closing and consolidating.
“Close down an account and you get maybe 400 bucks,” Brian says. “Let’s do that two or three times and put it into one account. Now you only have one company, one account, and one statement to worry about. And that’s a win.”
Next, look at your credit cards. If you have cards you rarely use, you might consider closing one or two of them. (Keep in mind: Closing old credit accounts can bring your average age of accounts down, which can lower your credit score. But as long as you keep some accounts open, over time, your average age of accounts will go back up.) Another alternative—one that wouldn’t necessarily affect your credit score—is to keep the cards open and only use them for occasional small purchases or bills, like to pay for a monthly subscription for a streaming service.
When it comes to credit card debt, work to pay off the ones with the highest interest rates, and work your way down. It may take some time, but it will be worthwhile in terms of decluttering on every level.
Tip #4: Automate as much as you can
One of the easiest ways to simplify something is to automate it. Set it and (mostly) forget it. This will help reduce the stress and uncertainty of making difficult money decisions.
You can automate many areas of your financial life, including:
- Bill payments. Sign up for monthly automated bill payments for everything you can, from cable and internet to electricity and gas. It’s still a good idea to look over your bills just to make sure there are no mistakes or surprises.
- Your savings. Saving money is tough. By automatically transferring a certain amount of your earnings—even if it’s very small—into a savings account, you are doing yourself a big favor.
- Your investments. Ideally, a portion of your pretax paycheck is already automatically invested in your company’s 401(k). But if you’re an independent contractor, or if you can afford to invest on top of your 401(k), designate a sum from your checking to be invested each month in a separate IRA, Roth IRA, or standard investment account.
Tip #5: Organize your files
These days, decluttering your finances is often done digitally. But sometimes it involves physical tasks, like making sure your files are organized in a way that works for you—whether that’s in a three-ring binder, a file cabinet, or a computer folder.
However, you like to keep your documents, the important thing is that you know where they are and how to get them. “If it’s tax time or if I’m applying for a mortgage, knowing where those documents are and being able to access them is well worth the hour or so it may have taken to get them organized,” Ford says.
The satisfaction and peace of mind that comes with decluttering can’t be understated. When you face your financial clutter head-on, you’ll reap the benefits: less anxiety, fewer accounts to keep track of, a clearer mind, and more financial freedom. You may even be inspired to declutter other areas of your life, too.