7 Steps to Simplify Your Banking
During times of uncertainty, having a clear picture of what’s happening with our money is more important than ever. Why? Many of us are trying to adjust to life with a lower income, our expenses are changing, and we’re reprioritizing our goals to ensure we have enough cash on hand.
It’s hard (impossible, actually) to make confident financial decisions when we don’t know what’s going on with our money.
Yes, it takes some work to assess our finances, but it’s more than worth it. And the good news is, the simpler we make our banking lives, the easier it is to do.
I’m going to take you through seven steps to simplify your banking, Marie Kondo style. These steps will make your life easier and will also increase your cash on hand. Win-win.
Step 1: Take inventory of your accounts.
We have a natural tendency to not want to know what’s happening with our money. I get it. I’ve been there. We imagine it will be less painful not knowing but really, that creates even more stress. Until we know what’s happening with our finances, we can’t do anything about them. And there’s no power in that.
One of the ways we complicate our finances is by having too many accounts. For many of us, they’ve just accumulated over time. To really understand where we stand financially, we have to keep track of each of these accounts (and those passwords, whew!).
Start by making a list of each of your accounts along with its purpose. Do you have multiple checking accounts (Perhaps one personal, one joint, and one you forgot to close)? Do you have multiple savings accounts for different goals? List all of them out.
Step 2: Reduce or eliminate fees.
In most cases, there is no reason to pay fees for banking. Next to each account, write down any annual or monthly fees you pay. Include overdraft fees, minimum balances fees, and fees you pay to use the ATM.
I used to go to great lengths to keep certain accounts above the minimum balance so that I didn’t have to pay monthly fees. It’s not worth the headache or the mind space to have to keep track of that.
Step 3: Maximize interest earned.
Next up, interest. Write down what you are earning in interest from each of these accounts. A lot of times our banking gets more complicated when we are looking to maximize the interest we earn. We’ll keep a certain amount of money in one account and move the rest to the other to earn extra interest.
Some accounts will earn you pennies each quarter, while others boast high interest rates.
At this point, we’re just taking inventory. What percentage are you earning in each account?
Step 4: Plan for goals and larger, irregular expenses.
Another reason we might have additional accounts is to separate out our goals and to create sinking funds for our larger, irregular expenses. It can be helpful to have a separate savings account for our rainy day fund (goal) and then sinking funds for things like travel, the holidays, and our pet’s vet bills.
If you aren’t separating out your goals and sinking funds, I definitely recommend it so that each dollar is set aside for a specific purpose. It’s easier to be deliberate with our savings when we don’t have an amorphous blob in one account. If you are already using sinking funds, it’s a great time to revisit them.
Sinking funds help us smooth out larger expenses. Instead of paying $3,000 for a trip all at once (which can cause us to pull from savings or build a credit card balance), we can put money aside from each paycheck. $3,000 per year turns into $115 per paycheck ($3,000 / 26 paychecks).
There are two main ways to do this: 1) Open up separate accounts for each goal on the list or 2) some online savings accounts use “sub-accounts” or buckets as a way to separate out funds for tracking - while keeping them all in one simple overall account.
Here’s a list of my favorite online savings accounts.
Step 5: Coordinate with others.
Whether you’re sharing expenses or goals with a partner or splitting up bills with a roommate, coordinating finances with others adds a level of complexity. Do we set up separate joint accounts for the things we share? Do we coordinate more transfers to settle up at the end of the month?
Think through the ways your life could be simplified by more seamlessly sharing with a partner. You might consider consolidating shared expenses to a joint account.
Step 6: Make a simplification plan.
Now that you’ve consolidated the important information in one place, it’s time to come up with a plan! If you notice superfluous accounts you can let go of or accounts you can combine, make note of that.
If you are earning almost no interest, paying fees, and generally feeling like your banking is disjointed and complicated, you are not alone. Most of us start out in this boat! You might be in the market to switch banks.
How we want to set up our accounts is very personal. We want to work with banks that make our lives easier, not the other way around.
Step 7: Put the plan into action.
The last step is to put the plan into action. Create a list of action items based on what you decided to do in your simplification plan. Any time we close an account, we’ll want to go through our recent statements to see which expenses come out of that account.
If they are expenses we plan to keep, we’ll want to move them over to another account. Moving accounts is such a great opportunity to “clean house” and make sure each of our expenses are things we’re aware of and are intentionally choosing.
You don’t have to (and probably) can’t get through the entire checklist in one day, but know that with each item you check off your list, you’re getting closer to a more simple and manageable financial system. I feel a sigh of relief already!