Consolidate your financial accounts
A good place to start is by drawing a financial network map.
Longtime readers of Bargaineering will know that in the last year I've been aggressively consolidating our financial accounts in a quest to simplify my finances. It seems fitting that, for Spring Cleaning Week, our second post of the series should be about how to consolidate all the financial accounts you've accumulated in the last few years.
- Interactive chart: Finances by age, income
In an ideal world, you really need only one checking account, one savings account, one credit card (although that's debatable), and one brokerage account. We, of course, don't live in a utopia; we live here.
It doesn't take long for financial accounts to accumulate like knickknacks on your bookcase or mantle. A change in job adds a 401k, a change of address adds a new bank, and before long you have a dozen financial accounts you don't even use every month with a few bucks here and a few bucks there.
While most of the battle is in simply getting it done, I think a few tips I picked up may help you in your quest.
Draw a financial network map
Draw a financial network map that illustrates the relationships of all of your accounts. This will give you a better idea of which accounts you can trim and which ones you should keep. From my original map, I trimmed Emigrant, FNBO, and ETrade (and several others I didn't include) from the network without incident. A map is absolutely crucial.
Consolidate credit cards
When consolidating credit cards, try to consolidate one card into another. For example, if you have two Citi credit cards, call them up and ask if you can merge the credit lines. When you close a credit card, your credit score might take a small hit as your total available credit falls (this impacts credit utilization) and the average age of your cards falls. By merging cards, you minimize the damage while maximizing simplification.
If you're also combating credit card debt, one great way to consolidate your cards and reduce your monthly interest payments is to take advantage of a 0% balance transfer. By consolidating several debts into one, you can reduce how many accounts you have to manage and lower the interest rate (for at least 12 months). This gives you a chance to catch up and keeps things nice and clean.
When you leave a job, consider moving the 401k into a rollover IRA unless your 401k fund options are stellar. Each of my employers had good 401k programs but their expenses couldn't compete with Vanguard. Vanguard, for instance, charges a mere 0.07% on its 500 Index Fund (Admiral shares) and no annual account-maintenance fee.
When you do decide to start consolidating, you don't need to do it all at once. Start with the easy ones first to get a little wind in your sails. Online savings accounts can usually be closed entirely online, and credit cards usually need only a phone call. Brick-and-mortar bank accounts usually require a visit, so you can save those for when it's convenient.
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