Clutter is defined as a confusing and disorderly state of collection and a possible symptom of compulsive hoarding. It is associated with traffic, congestion, pollution and a lack of freedom. Financial clutter can lead to paralysis when making financial decisions, and can impede your ability to progress and develop financially. In other words, financial clutter is bad.
How does it happen? Older people often look back in wonder at how beautifully simple their financial affairs were when they were younger. A student loan perhaps, rent payments and the odd credit card bill was everything financial back then. Things start to get more complex over time. Add a new mortgage to the mix, a gym membership, insurance polices, subscriptions, charity payments, pensions, childcare, various investments, loans, store cards, utility bills, council tax and it all becomes too overwhelming to manage. You then bury your head in the sand. Before long, you are in denial and simply can’t bear to look at your bank statements!
How to de-clutter: The first thing to do is to simplify things. The fewer accounts you have, the fewer statements you’ll need to juggle. The fewer things you need to juggle, the easier it is to keep track. The more you automate your life, the fewer decisions you’ll have to make.
1: Buy a scanner and a shredder. There is no reason to hang onto old utility bills and bank statements. These days, with online access to everything, you can scrap almost every piece of paper that comes in. Scan your bills into various folders on your computer and shred the originals.
2: Get rid of debt. The fewer debts you have, the fewer payments you will have to make each month and your bank statements will look great deal healthier. Getting rid of debt takes discipline, commitment and most importantly, sacrifice; but it can be done and is definitely worth the pain.
3: Pay your bills straight away. Only ever touch a bill once. Some people think it’s smart to wait until the bill turns red and threatening. It isn’t smart at all; it just delays and prolongs the pain of having to pay. Only open your bills when you are in a position to pay them – better still, pay by direct debit. That way you can simply scan the paid bill into your folder and shred.
4: Automate your savings. If you are a saver, make sure you do this automatically by direct debit, whether you are saving into a bank deposit account, cash ISA or Stocks & Shares ISA. This way, you can build up capital without having to think about it.
5: Consolidate your pensions. Most people end up with various pension plans with different companies as they change jobs. This can be a right pain, and unless you’re a financial whiz, impossible to keep track of. Seek the advice of a financial adviser and see where it makes sense to consolidate your pensions. This makes it much easier to monitor important things like performance, risk strategy and your retirement goals.
6: Outsource. Think of how difficult it would be to de-clutter a cluttered house yourself. Now imagine you hired the help of the House Doctor. She would make it look easy. With an iron will, you could de-clutter your finances on your own, however, hiring the services of a financial adviser would make it that much easier.
The result would hopefully be a nice open financial highway, free of congestion, traffic and pollution. It would give you freedom and save you time, and time as we all agree, is money.
Akwasi Duodu, Sterling & Law Independent Financial Consultants