Are you wondering how to simplify your financial life?
Well, you’re in the right place!
You see, here at Be the Budget, we believe that financial complexity, more often than not, just turns into financial difficulty and stress. So, learning how to simplify your financial life is one of the smartest things you can do on the road to achieving your financial goals.
That’s why, in this article, I’m going to show you 7 ways to simplify your financial life.
Let’s dive in!
1. Focus On Your Net Worth (Not Your Credit Score)
These days, it’s all too common to hear people talking about their credit score. Whether it’s high or low, for many people, it is their main financial focus.
The problem with this way of thinking, is that you can only build your credit score by taking on debt. Whether it’s student loans, car loans, credit card debt, or a mortgage, building your credit score requires you to add complexity to your financial situation.
Think about it, every time you take on debt, you are reducing your cash flow, and adding another payment to your financial life. And the more payments you add, the more complex your financial situation becomes.
So, you should take the focus off your credit score, and instead, focus on building your net worth!
Additionally, if you are unfamiliar with the equation to calculate your net worth, it looks like this:
Assets – Liabilities = Net Worth
So, essentially, if you want to improve your net worth, you need to either decrease your liabilities, or increase your assets. In other words, you need to pay off debt, or save and invest. It’s as simple as that.
Here’s the best part, if you reduce your liabilities to $0, then this equation becomes much simpler. In fact, it doesn’t even require subtraction. All you need to do is add up the value of all your assets, and BOOM, you have your net worth. I don’t know about you, but addition is much more fun than subtraction when it comes to financial math.
If you want to simplify your financial life, one of the most important things you can do is focus on improving your net worth. This will force you to stop adding liabilities (i.e. debt) to your financial situation, and instead, save and invest your money.
2. Get Out Of Debt
Ok, so I know I already harped on debt in the last section, but this is important enough to call out on it’s own. If you want to simplify your financial life, then you need to get out of debt.
Beyond just decreasing your net worth, debt means more payments. And the more payments you have to make, the more complicated your financial situation will be.
For instance, when my wife and I decided to get out of debt, we were making payments to multiple lenders every single month. So, whenever we would get our paychecks, we had to immediately start subtracting our monthly payments from our income. Then, we had to go through the process of paying each lender, and checking them off the list.
And the more payments we had, the more uncertainty I felt about whether or not I had let a payment slip through the cracks. In other words, our financial situation was way more complicated than it had to be.
Fast forward to our debt-free lifestyle, and the only payments we have to make each month are our utility bills and rent. All the rest of the money goes towards giving, saving, and investing. It’s almost too simple.
If you have designs on simplifying your financial life, I highly encourage you to not only get out of debt, but stay out of debt. It might be a difficult task, but it is so worth it in the end!
If simplifying your finances by getting out of debt sounds appealing, be sure to check out our Free Debt Snowball Calculator.
3. Use The ‘One Account Rule’
Of all the financial advice I can give you, this is probably my favorite tip. If you want to reduce the complexity of your financial life, then you should use what my wife and I refer to as ‘The One Account Rule’.
Here’s how it works: you only spend money from your checking account. Yep, you heard that right. No matter what you choose to spend money on, you either pay cash, or use your debit card.
First of all, this rule makes budgeting about as simple as possible. Think about it, if you only have to log into one account to track your spending, it saves you time and the headache that comes with multiple accounts. Seriously, it takes me about two minutes to log into our bank account and update our budget.
Secondly, when you spend money with a debit card, the money comes right out of your account. You don’t have to wait for the transaction to appear like you would with a credit card, which helps maintain absolute clarity in your financial life.
Finally, when you only pay with your debit card, or cash you pulled from your checking account, you never have to deal with monthly payments, credit card balances, or interest. You can’t tell me that credit cards do anything to simplify your financial life. The only thing they simplify, is your ability to live beyond your means.
4. Start A Side Hustle
If you made a few hundred, or even a few thousand dollars extra each month, would it reduce the complexity and stress in your financial life?
No matter what your financial goals are, from getting out of debt to investing for your future, if you add a little financial margin, everything becomes easier. That’s why I am convinced that one of the best ways to simplify your financial life is to just make a little extra money. And if that sounds good to you, then you should consider starting a side hustle.
A side hustle can be anything from a second job you work at nights to that blog you’ve been wanting to start for the last few years. In fact, if starting a side hustle sounds like it would be up your alley, here are a few ideas you might want to consider.
- Freelance Writing: Many people make a really solid living as a freelance writer. And, there are so many opportunities out there. Whether you want to write blog posts for local businesses in your area, or ghost-write an ebook for somebody, you can make a solid living if you have a way with the written word. And the best part is, the better and faster you get at writing, the more you can charge for your services. You could even turn this into your full-time gig.
- Web Development: If you know how to build websites, especially in WordPress, you can make a great living as a freelance web developer. I have personal experience in this arena, and I can tell you that you can charge upwards of $5,000 for a simple website. Plus, if you get into e-commerce websites, that price goes up.
- Tutoring: Depending on the subject and skill level, you can charge anywhere from $25 per hour, to $150 per hour as a tutor. What’s more, you don’t even have to meet with students in person if you don’t want to. Online tutors these days are super common, and many of them make enough money to do it full-time.
- Teach Music Lessons: If you know how to play an instrument, and you have a solid understanding of music theory, then you should try your hand at teaching music lessons. You can make a pretty good side income doing this, and in most cases, lessons only last a half an hour.
- Blogging: Despite what you might hear, blogging is not dead. You can still make an unbelievable income if you run a blog. You just need to know how to do it. In fact, many bloggers earn six, or even seven figures a year from their blogs. Can you imagine making that kind of money each month? If you want to start a blog, but don’t know where to start, be sure to check out our posts, Blog On A Budget: 10 Low-Cost Essentials For New Bloggers and How Do Blogs Make Money? (10 Proven Ways).
- Working A Second Job: If you have enough energy after your normal day of work, one of the most effective side hustles is just a second job. This is probably the least complicated of all the options in this list, and the quickest road to make a side income. However, for most people, this is often a short-term — income-boosting — solution.
5. Don’t Try To Time The Market
For a long time, I looked at investing like it was this incredibly complicated thing. But truthfully, if you want to simplify your financial life, the only thing you should be concerned with when it comes to investing, is consistency.
It has been proven time and time again, that if you want to build wealth, you need to diversify your investments, and then contribute to them consistently for a long period of time. Seriously, it’s that simple.
So, instead of watching individual stocks, and trying to buy low and sell high, just invest in mutual funds with a solid track record, or index funds with low expense ratios. Better yet, consider working with a financial advisor that employs these same principles.
Oh, and if you have a retirement account like a 401-K, or a Roth IRA, just contribute to it every single month and let compound interest work its magic.
Trying to time the market is extremely difficult, and in most cases foolhardy.
So, just keep it simple, and be consistent.
6. Prepare For Emergencies
If you are prepared for financial emergencies, everything in life feels a little simpler. For instance, if your car breaks down tomorrow and requires $2,000 worth of repairs, and you don’t have that money saved up, you will have to either put that expense on a credit card, or scramble to find the money to pay for it. In other words, your life just got a lot more complicated.
Can you imagine how much different — and less complicated — that situation would be if you had $30,000 sitting in an emergency fund? You could pay for the repairs without a second thought. At worst, it would be a minor inconvenience.
Therefore, one of the best things you can do to simplify your financial life is save an emergency fund big enough to cover 6 months of your living expenses. It might not be the most fun thing to do, but it will make your life a whole lot simpler if you ever run into a financial emergency.
7. Get On A Budget
If you think you can simplify your financial life without creating a well-defined plan, then you are in for a challenge. And why would you even try?
Budgeting is the most effective way to get your financial life in order, track your spending, plan your future, and maintain a simple financial lifestyle. Even a basic budget can be the difference between achieving your financial goals, and wondering where all your money went.
For my wife and I, budgeting has been the single most important financial habit we have ever adopted. It has been our guiding light through every financial season in our marriage. From getting out of debt, to saving to buy a car in cash, to building an emergency fund, and preparing our finances for our first baby.
I can’t emphasize this enough: if you want to keep your finances as simple as possible, you should get on a budget as soon as possible.
For more on budgeting, be sure to check out our related posts:
- How Does Budgeting Help You Save Money?
- How Often Should You Review Your Budget?
- 50 Personal Budgeting Tips To Improve Your Finances
- How To Make A Budget: 10 Simple Steps That Actually Work
How To Simplify Your Financial Life: Summary
If you want to improve your financial life, one of the best things you can do is simplify it. And, in this article, we covered seven ways to do just that. From focusing on your net worth and getting out of debt, to using the ‘One Account Rule’ and preparing for emergencies, it only takes a few small steps to drastically simplify your finances.
So, what steps have you taken to simplify your financial life? Be sure to comment below. We love hearing from our readers!
Also, if you liked this post, you should subscribe to Be The Budget and join our growing community of budgeters, side hustlers, and frugal for life-ers! It’s pretty much the coolest thing you’ll ever do!
