Overwhelmed by the number of bills and credit card statements piling up on your desk? Not finding the time to review the performance of your investments? Missed a bill payment, got charged NSF, or misplaced your financial documents?
You are not alone. Nearly one in four people have either lost or forgotten about a vital financial document, and only 40 percent of people believe they can locate a key financial document at a moment’s notice.
Financial clutter can easily happen when you have multiple financial products and you’re dealing with multiple financial institutions and financial advisors. You’ll know it’s financial clutter because it feels unfinished, messy, complicated, or it’s something you’ve been avoiding!
How to Spot Financial Clutter
Here are some clues to reveal that you may be dealing with financial clutter:
- A wallet overflowing with debit cards, credit cards, rewards cards, and gift cards
- A phone with multiple financial apps
- Multiple lines of credit, loans, and credit cards
- Multiple insurance policies
- Multiple investment portfolios and/or financial advisors
- Unpaid bills, late payments, or duplicate payments
- Bruised credit rating
- Financial documents that cannot be located easily
- Stacks of unopened envelopes containing your financial documents
- Consistently late tax filings, or even behind on tax filings
The Cost of Financial Clutter
Financial clutter can block our progress towards our financial goals, and the cost can be huge in terms of our peace of mind. The following are just a few ways financial clutter can cost us extra time, money, and stress:
- Overpaying for the cost of borrowing money
- Debt piling up or unable to manage your debt
- Underperforming investments
- Paying more in fees than you need to for your investment management
- Over or under-insured
- Hidden expenses and or subscriptions you no longer use
- Time spent reviewing multiple financial statements and dealing with multiple advisors
- Lack of a cohesive strategy
If you are dealing with financial clutter, we challenge you to approach it head-on. Here are some easy steps to simplify and organize your financial life. Keep in mind that it’s a process. Take it one step at a time, and we promise you’ll reap the rewards!
6 Steps to Decluttering Your Finances
Set Aside Time – Block off time in your calendar to get started. Make a list of all your financial products, including the ones offered by your employer. Document where and how to access each. Remove multiple financial apps that may be overcomplicating your finances. Pick one or two that bring you the most value.
Toss Out Unnecessary Documents – Gather all your financial documents and decide on a hard copy or soft copy filing system. Decide which documents to keep and for what time period. For example, you may consider retaining tax filing information for seven years and only retain original copies of insurance policies, along with the most recent policy statement. Stay organised by keeping the current year’s records handy and archiving the rest. Make note of when you can shred or delete any archived files. Review annually.
Clean Up Your Accounts – Reduce the number of everyday chequing or savings accounts you have. Set up automatic bill payments, and set reminders for any manual bill payments. Set time aside to review your transactions, including automated payments, memberships, and subscriptions. Cancel any payments that you no longer use and deal with any discrepancies immediately.
Consolidate Debt – Choose one or two primary credit cards to use. Look for lowest interest; avoid annual fees unless it is worth it; otherwise choose cash back. Avoid store credit cards, which frequently have low credit limits and high interest rates, both of which are potential hazards for your credit score.
Take an inventory of your debt and look for ways to reduce interest cost. Consolidate debt and choose debt with lowest interest rates. Set up an automatic debt payment plan. Review your credit report annually for overall score and to ensure up to date information. Take immediate action on any discrepancies.
Review Your investments – Set a goal in terms of your target rate of return on your investments over a medium-term time horizon (not year to year). Review your investments with an eye for fees, return on your investment, and risk-reward benefit. Automate your ongoing investment contributions or withdrawals.
Assess the amount of time it takes for you to manage your investments. Whether you are a DIYer or work with an advisor, consider the benefits of having a simplified and consolidated investment strategy that will save you time. And review at least annually for rebalancing, tax-loss harvesting and other accumulation or decumulation strategies.
Assess Your Insurance Needs – Consider an insurance needs assessment to determine the type and level of coverage you may need. Review against existing group coverage with personal coverage to determine if you have the right type and amount of coverage, and the premiums you are paying.
For yearly insurance renewals, review any premium increases and if existing coverage is adequate given your current circumstances. Pay premiums annually instead of monthly to reduce the premium cost (typically by 6-8%). Re-assess when there are any significant changes to your situation. Keep only a copy of your original policy and most recent statement. Archive the rest.
Remember that decluttering your finances won’t happen overnight. Start small and set aside time by booking it in your calendar. Have an accountability partner. Decide if you have the knowledge, skills, and interest to do it all on your own. Otherwise, hire a financial coach to help you.
Need Financial Planning Advice?
Objective Financial Partners is here to help. If you have any questions, contact us today.
