So you want to improve your finances, but life is busy. Between work, school, and taking care of loved ones, who has time to save money? There is some good news: with some careful planning, it is possible to simplify finances for you and your family without wasting hours of time each week. In this article, I’ll review my top financial life simplification strategies. My comprehensive guide is the step-by-step method I took to pay off over $20,000 in debt and fund a move halfway across the world without racking up any more debt!
Read on to learn about how to simplify finances for you or your family.
Why Simplify Finances?
Why simplify finances? After all, it takes hours of work to understand your income, create or adjust a budget, track spending and create long term financial goals. However, the short-term time investment in getting your financial situation together has several benefits:
General Reasons Why You Should Simplify Your Finances
1. Increase Your Ability to Save Money
What’s your money story? Everyone’s situation is different, which is why it’s crucial to understand yours. After I understood my financial situation including my monthly income, average expenses, and areas of weakness, I was able to properly tackle the problem areas and set long-term goals. Simplifying your finances is crucial for anyone who is serious about saving money. While you might be saving at the end of the month, you can’t improve what you don’t measure. Before I started tracking my finances, I was saving about 30% less than I am saving now. Why? When I had spending limits, I was able to consistently save the save amount of money per month.
2. Reduce Time Spent Tracking Finances
Time is money – and unlike money, it’s something that you can never get back. Before I had a proper, simplified way of tracking my finances, I was spending a lot of time manually reviewing my receipts and writing down my income. That extra time can be used for so many other important things like taking up a hobby, spending time with family, getting another qualification so you can get a higher-paying job or taking on an extra part-time job or side gig!
3. Achieve Financial Goals
In addition to increasing your ability to save money, you can put that extra money to work! What do you want to fund or experience in the next few years – college tuition to go back to school, a fun trip to India, Italy or somewhere else or simply start seriously saving for retirement? The possibilities are endless. When you simplify finances and track income and expenses, you’ll be in a good place to actually achieve what you want to.
4. Reduce or Eliminate Debt
Debt: an ugly word that many would rather not hear or talk about. The reality is that if you aren’t careful, debt can slowly eat away at your net worth – you can thank compound interest for that!
Other Unexpected Benefits of Simplifying Finances
1. Appreciate What You Already Have
When my finances were disorganized and I was chasing the next experience, item of clothing or phone, I was deeply unhappy. Those things I bought brought me a temporary burst of happiness. However, in the long run, I always wanted more. After I simplified my finances and cut down on buying non-essentials, I focused on the things and people in life that bring me joy. I realized what was really important in life!
2. Feel a Sense of Pride
Budgeting takes a lot of work – in fact, any type of work organizing money or dealing with finances can be daunting, scary or unappealing. When you look at the results of all your hard work organizing your finances, you’ll feel incredibly proud of yourself!
3. Strengthen Relationships
It’s always best to go about taking on a challenge or building a new habit with someone else. Find a loved one who is also interested in improving their financial situation. Even if this isn’t possible, simplifying your finances will bring you closer to your family. When you focus on the big picture of why you’re doing what you’re doing, you’ll be more motivated to keep going even when it gets tough.
Furthermore, a large aspect of working on your financial situation includes swapping out costly products and experiences for cheaper, yet equally effective or entertaining ones. Many of these alternatives involve spending time with loved ones (for example, a games night in or a picnic lunch).
4. Have Fun Getting Creative with Low-Cost or Free Alternatives
Being frugal is fun! In your old life, you probably just pulled out your credit card whenever you wanted to have fun. In this new life of frugality, you’ll have the amazing opportunity to find activities that cost little to no money. Some examples of low-cost or free alternatives to expensive ones include doing a clothing swap instead of buying retail or at a thrift store and choosing to host a cocktail evening in instead of going out for drinks. These are key examples of fun alternatives that are just as fun but 50% to 100% cheaper!
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How to Simplify Your Finances
Simplify Your Finances – Planning Steps
Pick a Time to Go Through Things
Firstly, you’ll need to set aside a block of uninterrupted time when you’ll be able to review your financial situation. When I began simplifying my finances, I chose a Friday evening for this step as I didn’t have to work the next morning. I was able to focus on the task at hand without thinking about making my lunch for the next day and when I would have to get up in the morning. Choose a time that works for you.
Choose a Way to Track Finances
How will you track your finances? I love using a spreadsheet – I know, I’m a huge nerd. However, most people don’t want to do that as it may be too difficult or boring. No worries! Alternatively, use a notebook for logging your finances. Draw a chart with 3 rows and columns for categorizing expense types (Fixed Essentials, Variable Essentials and Non-Essentials) and make space to write down your income. From there, add up all your expenses, then subtract your expenses in each category.
Assess Your Income
The first step when going through things – understand exactly how much money you make – after tax (net income) – each month. If you’re self-employed or paid by the hour, take the average of the last 3 months of your earnings. Understanding your income is crucial so you understand how much rent you can afford to pay, how much debt you could pay off comfortably and how much you can comfortably spend on other expenses. One other important reason it’s important to know your income? Finding out whether or not you’re being paid market rate for your industry and if you need to increase your income to live comfortably.
Find Out How Much You Currently Spend
Next, find out how much you spent last month on each essential and non-essential category. Use my guide on the 12 budgeting categories to sort your expenses. For a more accurate picture, use the average of the last 3 months. For example, if you spent $350 on groceries in March, $265 in April and $380 in May, your average is $332 ($350 + $265 + $380).
Divide each category into essential and non-essential categories. This way, you’ll understand which categories are non-negotiable (such as rent), non-negotiable expenses that can be adjusted (such as groceries) and non-essential categories not necessary to survival (such as subscriptions).
Example:
- Essential, fixed (non-adjustable) expenses: rent payment, car payment, insurance premium
- Essential adjustable expenses: groceries, clothing and other important items that you can reduce costs on
- Non-essential expenses: examples include travel, non-essential clothing and movie tickets
Determine Your Baseline Living Expenses
After you’ve categorized your expenses, determine the minimum amount of money you need to survive. What do you need to put a roof over your head, put food in your stomach, and ensure you have a clean, quiet place to shower, sleep and tend to personal hygiene.
Calculate Your Monthly Surplus
Next, subtract your baseline expenses from your average monthly net income. The number you’ll have at the end is your surplus. For example, if you make $3000 a month after tax and your baseline expenses are $2200, you have $800 left.
Determine a Plan for Putting the Surplus to Use
What will you do with that extra $800 – or whatever amount you have? Work with a financial professional to determine a plan that works for you. Paying off debt, investing, and saving a little extra for fun stuff are common ways to put extra funds to use. When working on your financial plan for you or your family, factor in any savings or investments you have and future pension payments you’ll receive from your government or employer.
Simplify Your Finances – Practical Steps
Now that I’ve outlined my easy guide on how to simplify finances, what about practical steps? Once you begin tracking finances, try implementing some or all of the following tips below. These tips save me hundreds of dollars per year – you can do it, too!
Compare and Switch Services
Sure, you might think you have a good deal on your internet – after all, you’ve bundled it with your provider’s streaming subscription. Think again – sometimes, providers offer discounts for a limited time. Call up your provider and ask about any specials.
Automate Savings and Investments
You’re busy – after all, that’s why you’re reading this article… you want to simplify finances and save time! Cut down on manual work by automating bill payments and investments. I automate my investments so I don’t forget to make my regular contributions and miss out on compound interest.
Cut Back on Budget Categories
As I mentioned before, we all have stuff and experiences we just cannot live without. Other categories aren’t necessary to survival, but are necessary for enjoying life – for example, travel or going to a concert. However, there may be some categories you spend money on that you can live without. For me, that item is coffee. I can make my own coffee at home that tastes just as good as my local Starbucks chain. Therefore, my takeout coffee budget is very low – think only about $30 a month (1 special coffee beverage per week). Think of 1 or 2 categories you can cut down in and choose a percentage of dollar amount to reduce it by – say, 50% or more.
Keep Separate Bank Accounts for Every Goal
Keep separate bank accounts so you have a visual of how much money you have saved and how much you need to still save or invest. Another major reason why it’s important to keep separate accounts: you’ll be less tempted to pull out money or accidentally spend it. Before I created a separate bank account for travel, I accidentally spent that money in my checking account. It took me 3 months longer to save for my Cuban vacation than if I had kept a separate bank account – which I do now – lesson learned!
Cultivate a Positive Financial Mindset
Your mindset is key – stay positive and believe that you have a life of abundance! Even when an unexpected expense comes up, you go over budget or you are feeling down, get your mental state back on track. Write down 5 things you’re grateful for and journal 1 positive money affirmation. Affirmations alone won’t bring you financial success, but they’ve kept me motivated to keep going with my goals.
Reward Yourself
After I started getting organized, I regularly rewarded myself with a weekly takeout dinner. While I had treated myself to regular takeout orders before, the food truly tasted better because I knew I had worked for it! Choose a treat or experience you enjoy and indulge once you hit certain milestones.
Other Key Ways to Help You with Your Finances
Here are even more tips to keep on track with your finances:
- Manage subscriptions and recurring expenses – cut down on bills and services you don’t use enough
- Use a cash envelope system – you’ll be a lot less likely to overspend as compared to using a credit or debit card
- Comparison shop – look at 3-5 different stores before making a purchase so you avoid overspending
- Meal plan and batch cook – buy in bulk to reduce costs and reduce the temptation to order takeout by keeping batch-cooked meals in your fridge and freezer. A simple way to save money!
- Repurpose old stuff – take that old tennis racket and make a cute mirror!
- Go DIY instead of buying brand-new – for example, DIY your own greeting cards!
- Boost your income – negotiate a raise, get a new job, find a side job or take on a side hustle
- Focus on low-cost or free alternatives – find free concerts or other events in town instead of shelling out $100 for that hockey game every time you want to go out. Living a simple life with little money also often means focusing on experiences instead of physical possessions. Set aside an extra 30 minutes each morning to go for a walk in the park or enjoy a cup of coffee on the back porch instead of rushing off to work first!
Other Resources on Budgeting and Family Finance
- The Benefits of Making a Financial Plan by Frugal Fun Finance
- Financial Planning Steps by Frugal Fun Finance
- 30-30-30-10 Budgeting Strategy by Frugal Fun Finance
- 100 Positive Money Affirmations by Frugal Fun Finance
- Family Budgeting Tips That Actually Work by NerdWallet
- 18 Ways to Simplify Your Finances by Happy Simple Living
- How to Simplify Your Money and Finances by Family Budget Expert
- 11 Ways to Simplify Your Financial Life by Becoming Minimalist
- 5 Easy Ways to Simplify Your Finances by She’s On the Money
- How to Simplify Your Finances and Manage Your Money More Easily by Balance Through Simplicity
A Final Word on How to Simplify Finances
There you have it – my step-by-step guide on how to simplify finances. Pat yourself on the back for choosing to improve your financial health and enjoy living frugally! If you make mistakes or get discouraged, don’t be hard on yourself. Find out where you went wrong, document it, and commit to doing better next time. Get family and friends on board with a better financial life. Most of all, enjoy doing it!
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Janita is a frugal living expert and owner of Frugal Fun Finance. With over five years of personal experience finding and trying out the best ways to make and save more money, she's eager to share her knowledge. Janita's strategies have helped her save thousands of dollars for funding investments and traveling to over 20 countries.
Janita completed training in personal finance at The University of Western Ontario and McGill University, two prestigious Canadian universities. Her expertise has been shared on GoBankingRates, Yahoo Finance, and NASDAQ.com.
