5 Ways to Simplify Your Financial Life: Step 1 Consolidation

Our personal finances- budget, investments, retirement, insurances, credit, etc.- are one of the leading causes of stress among adults. School systems only recently started offering personal finance courses to high school students within the last 5 years, and it is not yet a leading standard of education throughout the nation. But it is something that every adult must navigate, and it deeply affects our quality of life day to day. This leads to large amounts of confusion, which results in higher taxes, significant loss of potential investment returns, lost cash flows not being put to good use, and even poor credit scores. In the midst of financial confusion, making small changes can have a big impact on your overall financial health. Here are 5 basic steps to simplifying your financial life:

Step 1: Consolidation

We have all heard the famous euphemism “don’t put all your eggs in one basket”. This is especially true when it comes to investing our money. If all of your money is in one company’s stock, and that company goes under, then you have lost everything you had invested. “Diversification” is a key investment strategy that tells us to invest our money among different types of asset classes and investments. This way, when one investment is doing poorly, another may be doing great, thus allowing us to grow our money while taking less risk.

The problem here is that often times we mistake diversification to mean spreading out our money among accounts as opposed to among investments. I often meet with folks who tell me how they have done a wonderful job diversifying their assets. We sit down and lay out all of their different account statements (most of which are the same type of account: Roth IRA, brokerage, etc) from every different investment company they work with. What we find is that each one is invested similarly. This is because each firm only sees the individual’s one account and invests it the same way. In this instance, these investors are not diversified. They are just complicated.

Consolidation is key to simplification. Someone can be properly diversified while also consolidated. Consolidation is taking your “like” accounts and putting them together. So, moving your three Roth IRA’s into one Roth IRA, two checking accounts into one checking account, etc. You can even consolidate credit cards and loans in such a way as to lower your interest rates and receive a more favorable monthly payment. Be careful when consolidating and make sure you are not leaving an account that has special grandfathered features though. Make sure to do your research or work with a financial professional before making such decisions to know that you will not be subject to any surrender or termination charges.

Consolidation is a wonderful tool to simplifying and streamlining your finances. Imagine a world where you have everything in one place, working together, and where you only have one username and password to see it!