How many financial accounts do you have? Savings, checking, investment, and retirement accounts. I bet you have at least 5, but why so many? I'm sure every account you have doesn't have a purpose too. Having 3 savings accounts probably isn't much different than having just 2 or 1, so why keep them? I don't think you should.
An enormous part of personal finances is the psychological side and that's important to understand. Consolidating down to just the accounts that have a purpose will be a psychological action that will improve your finances. Consolidating down to just the accounts you need might not put you in a better position financially, but it will help your finances be less overwhelming and easier to manage. Of course, these outcomes may lead to financial gain, but that's not the point. We want our psychological side of our personal finances to improve.
Follow these steps to consolidating your accounts
There are two ways you can consolidate. First, you can consolidate down to have less accounts (e.g. having 1 checking account, instead of two). Second, you can consolidate down to one platform (e.g. having a savings account and an investment account at the same bank, instead of at different banks). For you, it will be a combination. The goal isn't to consolidate down to one account. The goal also isn't to get all your accounts on the same platform. The goal is to simplify your finances.
Below you'll find my consolidation as an example. I haven't completed the entire process yet, but I'm working on it now. I wanted to share it to help you understand how to consolidate your own finances.
1. List of accounts and their platforms
2. For each account, write the purpose for it. Okay to leave blank.
3, 4, and 5. Consolidate, Perform, Improve.
In steps 3, 4, and 5, you can see I consolidated to what I needed and then changed some of the accounts to get the maximum benefit for the purpose I have. For example, switching from Wells Fargo Savings to Betterment increased my yearly interest from <.01% to 2.68%, which is pretty close to inflation. I switched my individual brokerage account from Wells Fargo (who had a trade fee) to a company that doesn't have trade fees. Then finally, I consolidated my retirement accounts onto one platform, Fidelity. Then, I closed accounts I just don't use anymore, like my old checking account and Acorns. They served a purpose at one time, but they don't anymore.
I consolidated down from 11 different accounts to 8. My platform count (5) stayed the same, but I improved many of my accounts by changing platforms, whether they offer lower fees or higher interest rates. Overall, it's less overwhelming, easier to manage, and more financially beneficial.
Your plan will probably look totally different then mine. The important part is that you choose a consolidation plan that fits your finances the best. Determining the best plan for your consolidation might be hard, so please reach out to me. I'll help for free.
I do have one announcement. We're starting to create social media accounts for Better Budget. The first is @BetterBudgetCo on Instagram, so please follow! More social media accounts to come. I hope you enjoyed reading Better Budget and that it helped improve your personal finances!
If you Google "First time home-buyers help", you'll be swarmed by articles and advertisements claiming to have the answer. They fight for your attention, like two dogs playing tug-of-war with a rope and you're the rope. You feel pulled between a lot of different "answers" and "solutions". They're not all bad, but they often don't cover the entire process. You get served a meal, without an appetizer. I'm going to serve you the appetizer and explain today how you can prepare to buy a home. In this post, you'll learn about what you can afford, how to save for for a home, and how long it will take.
I broke down the process into 4 simple steps. If two people went through these 4 steps individually, they both would come out with different answers. My point being, these steps are tailored for you and your situation. They're not hard-rules, like a lot of financial-guru's preach. I like to keep things dynamic and adjust to your situation. So, let's get started!
Step 1: How much can you afford?
I want you to head over to Chase's mortgage calculator. Then, fill out the form like this:
I filled out this form for a hypothetical couple that makes a combined $90,000 per year ($7,500 per month before taxes). This couple pays $300 to debt each month. They chose to have a 5% down payment.
Don't worry about the results yet, just fill out the form :)
Step 2: What's your timeline?
Next, what's your timeline? Your timeline isn't when you want to move into your home. Rather, it's when you want to have the available funds. Most likely, you'll move into your home 1-3 months after you save the enough funds.
I recommend choosing a time span, i.e. not a target date. It makes the math easier. So, for our hypothetical couple, let's say their time span is 2 years. If you want to, you can choose a target date. For example, "I want to save enough for a home by January 1, 2021."
Step 3: Calculate!
Alright, now for the fun part! There may seem like a lot of steps, but I purposefully broke it out to keep things simple. I'll first summarize the steps, then show you how our hypothetical couple would calculate it. If you're not the greatest at math, I'll help you out. Just message me.
Now, let's go through these steps for our hypothetical couple. Remember, our couple makes a combined $90,000 per year, with $300 debt payments per month.
Step 4: Make adjustments
We're finally ready to make some adjustments if needed! If your Monthly Savings is way too high, you can make adjustments in a number of ways. You can make your debt lower (i.e. lower your Monthly Expenses in the calculator) and it will lower your Monthly Savings. You could do a 20 year mortgage, or 30 year mortgage, and it would lower your amount. If you changed this, you would also have to change your interest rate to something higher. You would also be have to buy a home less than the new estimate.
Really, you probably don't need many adjustments. You will be in a very good spot financially if you just generally follow steps 1-3. They'll already be customized for you, since everyone has different numbers and goals.
Well, that's what Rob Berger believes, creator of the Dough Money Roller podcast, a podcast I listen to often. I don't necessarily disagree either, but I think the end to this statement could be different for everyone.
For me, I think the best thing money can buy is time. You could probably argue that time=financial freedom, but I like to be a little more explicit. You have probably heard the saying, "Time is money" and it's true. I explained in a previous post how you can calculate your wages per hour. I want to look at this from two perspectives: 1) How money can buy you time, and 2) Why I think buying time is the best use of money.
How money can buy you time
The other day I was driving home from the beach. I usually use Google Maps as my GPS because it has an option to avoid tolls. Most times, the time difference between taking a toll route vs a non-toll route is only 10 minutes or so. However, this route would double the trip from an hour and a half, to a three hour trip, if I took the non-toll route. The tolls would only cost about $16 total. Paying $16 to save an hour and a half of driving is more than worth it. That's just one example of how you can buy time.
Why I think buying time is the best use of money
Time is the only resource that you can't get more of. So, it's very important to use your time wisely and make the most of it. Therefore, this is the primary reason that I say buying time is the best use of money.
The way you end "The best thing money can buy is..." is different for everyone. Some people have very wrong answers too, morally or just not the best thought out. I also think many people would have an asterix next to their statement too. For me, "The best thing money can buy is time*" (*the money must be spent according to good financial principles and time can be bought indirectly). Even then, it's a little vague because "good financial principles" differ from person to person. For instance, I wouldn't recommend going into debt to save time. Thinking more about it too, I'm not sure how strongly I would hold my stance that buying time is the best use of money. It's not exactly a hard rule.
Let's try this exercise. Finish the statement, "The best thing money can buy is...". Once you finish this statement, ask yourself if you're following it. If you follow it in some cases, but not others, that might indicate that you should have a different ending.
Thanks for reading the Better Budget blog. I hope you enjoyed it! If you have any questions or want some financial help, please reach out to me. I'd be happy to help.
Things are looking a lot better for my refinancing. I'll explain the story in a future post once I get through the end. I expect the end to occur within a week and hopefully it's a happy one, but it got me thinking. A lot of people make a financial decision they're not proud of. Actually, I would say we all have at one point and most of us are probably living in one. Also, sometimes you can't undo that financial decision.
I am in that situation now. I teach the 25% mortgage payment method. In other words, your mortgage payment should be no more than 25% of you take home pay (this rule can and should be applied to rent). Though I teach it, I didn't follow it. My mortgage payment is well above 25% of my take home pay. Nobody is going to perform their financial journey perfectly and I'm no exception. So, what can I do to fix the mistake?
I first considered reversing the mistake I made, but I based it purely off the numbers. My home value was about the same. I could maybe make $5000-$10000 more off it. Assuming average case (about $5000), I ran the numbers and considered new closing costs for selling this home and getting a different one. The numbers did not go well and they clearly showed I should not sell the home.
My next consideration is what I would recommend to a lot of people. If you can't reverse your financial mistake, make it the best wrong decision you've ever made. This is how I and my wife are approaching our home. The home was is a great house, but the price was not as good. We're making it right by refinancing, which increases the mortgage just a little bit, but it keeps so much more money in our pocket, which can be seen month-to-month when we calculate our net worth. It's also likely that our salaries will increase, which would get us closer to the 25% rule. Once the PMI drops off, we'll get even closer.
Our situation will naturally improve over time, but yours might not. If you don't expect your situation to improve, still make it the best wrong decision you've ever made. Just use this best wrong decision as a bridge. A bridge to what? A bridge to reversing the decision. If it's not going to naturally improve, you'll have to eventually undo the decision. It's a hard decision for some, but it needs to be done.
The most important thing for us all though, is learn. Learn from the financial mistake and don't make it again. For me, I need to follow the 25% mortgage payment method. It requires sacrifices, but they pay off. Every financial sacrifice you make will pay off later and even better. I promise you, with a little patience, you'll never regret the sacrifices you make.
Thanks for reading Better Budget! I hope if improves your personal finances become better. If you have any questions at all, please reach out to me. I'll be happy to answer any you may have. Have a great weekend!
Better Budget Co
Your guide to all things personal finance. We're big fans of goal getting budgets, debt fee living, and a good cappuccino.
My name is Corey and I have a passion for budgets and personal financing. I can talk about it for days (weirdly enough). Hope you enjoy the blog!
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