In our business, we work with a lot of incredibly intelligent people who know the financial world inside and out. From mortgages to personal investments to renovation loans, we’ve dug deep into the world of financing more times than we can remember.
And still, the following is a surprising revelation: as soon was you mention the word diversify in a space reserved for financial tips, people automatically think of investing.
And sure, diversifying your investments is an interesting, important, and pretty cool topic.
However, more people should be diversifying their personal finances on a regular basis.
Here’s how and why.
1. Use Multiple Bank Accounts
I know, multiple bank accounts doesn’t sound like simplifying, does it? Hear me out.
Most of us have a checking account and a savings account. Well, at least that’s what I started with when I was in my early twenties.
Well, the development of online banking means it’s easier than ever to stay organized. If you only have one or two accounts, it’s pretty easy to dip into that account when you need groceries, gas, movie tickets, or clothes. That habit can catch up to you pretty quickly. All of a sudden the account is depleted when you need it most.
For example, you could designate an account specifically for your bills so you don’t have to worry about them. Clothes and entertainment? Sure, that’s an account you can watch grow so when you see a hot new pair of jeans you just have to have, you won’t feel guilty about pulling the trigger.
And sure, it pays (literally) to have an account reserved for savings and investments. You can set up automatic transfers of $20 or $50 on a monthly basis so you can feel good about slowly but surely building up your savings.
2. Create Key Categories
Some advice you read online will tell you to really get specific when it comes to money out vs money in. Well, you can’t believe everything you read on the internet.
Except this blog of course.
Being specific can work if your spending habits are wired that way, but for me, a few distinct categories work just fine. Plus, it’s easier to consolidate a small handful of categories once tax season rolls around.
• Vehicle: this includes payments, service, and gas
• Food: this includes … food
• Entertainment: entertainment is pretty difficult to claim in April, so most of these payments are never heard from again
• Home: my mortgage, condo fees, repairs, upgrades, and bills all fall into this category
• Supplies: if you’re buying something for your business, you’ll need that receipt
Your mileage may vary on the amount or types of categories that work for you.
3. Get Familiar With Your Online Banking App
I’m not selling an app here or anything even though that’s what it sounds like - all I’m saying is it’s a good idea to get familiar with your online banking service. Open it up at least once a week, pay your bills as soon as you get them and move money around your accounts as you deem necessary.
Why does this make your personal budget simpler? Because it alleviates stress. Sure, we’d all love to sit back and let our finances take care of themselves, but that’s not how the world works.
The nice thing is that you can use technology to keep tabs on your budget, and then you can log off and rest easy.
Which reminds me, I’ve got bills to pay.