September 25th, 2012
Improve Your Finances by Making Sense of Financial Clutter
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I have a confession to make. I am a self-admitted financial junkie. I went through a phase where I opened dozens of new bank accounts, credit cards, brokerage accounts, and more – just to get a sign up bonus. Some of the offers can be fairly lucrative, with some credit card bonuses worth over $200 per new account.
I always had the self-discipline to use my credit cards and other financial accounts wisely, so this never led to any financial trouble. But I didn’t always have the discipline to close the accounts after I received the sign up bonus.
The result is a variety of unused financial accounts floating around. I’ve been systematically closing them over the last few months. If you find yourself in a similar situation, I recommend closing some of your unused accounts, and here is why:
- Tracking. It is difficult to keep up with your account balances, even if you are using an online money management tool. Fewer accounts makes it easier to balance your budget, track income and spending, and monitor your accounts for things like fraud or identity theft. (fewer 1099’s and other forms at tax time too!)
- Fewer updates. I moved last year and had to update my address, phone number, and other account information for dozens of accounts. While most sites allow you to do this online, some require a fax or signed document.
- Fewer fees. Some financial accounts charge inactivity fees, low balance fees, or other fees based on use (or non-use). Fewer accounts makes it easier to keep up to date with terms and conditions and avoid those fees.
- Consolidate rewards points, interest, and other bonuses. I use rewards credit cards for almost all purchases (and pay them in full each month). But having too many cards means your rewards are spread out among several different accounts. Consolidating them means you can earn and redeem your rewards more quickly.
How to Consolidate Your Financial Accounts
Create a master list of accounts. Depending on how many accounts you have, this may be time consuming. But it is an essential step to take in order to realize 1) how many accounts you actually have, and 2) how many accounts you actually use.
Start by creating a spreadsheet in Excel, Google Docs, or Open Office which is a free alternative. In the spreadsheet list your various accounts by type. Be sure to include your bank accounts, credit cards, investments (IRAs, 401ks, brokerage accounts, etc.), insurance policies, college savings plans, and anything else related.
Then start looking at ways you can combine these accounts. Since each person has different financial needs, there are no hard rules. As an example, I have two personal bank accounts, and a business bank account. I am now down to three credit cards, two personal cards which offer different rewards programs, and one business credit card. I still have quite a few investment accounts, but I am working on reducing those.
One thing to pay special attention to is old 401k plans. Many people make the mistake of leaving their 401k with their former employer when they leave. This can cost them more in fees, and they may possibly forget about it. You are almost always better off rolling the IRA into a 401k.
You may also be able to consolidate your insurance policies. Many insurance providers offer discounts when you have multiple policies through them, so this is worth looking into.
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