It’s time to clean up your financial act, and not just because it’s spring. If you’re into the spring cleaning thing, cool, no judgement. But no matter what time of year it is, the best time to clean up your sh*t is when it is out of control.
If you’re like most of our clients, and let’s face it, most people living in the 21st century, you’ve got financial accounts you don’t need and aren’t serving your goals, so here’s the push you’ve been waiting for to get rid of them. Sometimes you gotta be a pusher, just ask Ms. Norbury. (If you don’t get that reference please just skip to the good stuff and let us elder Millennials cry into our mimosas in peace.)
So let’s break it down: here are the bank accounts you need to ditch and the ones you can keep (or even add).
1. Old Accounts
You only need one checking account. Still have an account hanging around from that time the Wells Fargo rep cornered you at you college orientation? It’s time to get rid of it. Having extra checking accounts is not necessary, so take the time to close them out. There’s this super common misconception that closing a bank account hurts your credit, it does not. Let us say that again, it does not hurt your credit to close a bank account. So hop to it. Get rid of those extra accounts now.
2. Paper Documents
It’s 2019, hopefully you don’t have much paper. Digital is the way of the world now, and most of your files are probably stored digitally, and backed up to a cloud service. So it’s time to get rid of your paper files. You just don’t need them. Make sure everything is digitized, filed in a way that is searchable, and backed up, and then shred the sh*t out of all of those 20th century physical files.
All you really need is the last two years’ tax returns anyway, and if you’re using Turbo Tax or another digital filing service, those will be stored digitally, too!
Want to get rid of your docs securely? Shred them. Don’t have a shredder because you’re not living in a early 2000s office comedy? No probs, shredding services are offered at most UPS stores!
3. Old Credit Cards
It’s probably time to close some old credit cards, with caution.
For an optimum credit score you should have 2-3 cards open, but you should only really need to use one.
Yes, generally speaking, closing cards can ding your credit score. But if you spring clean your cards correctly, the ding should be minor and temporary.
It’s always a good rule of thumb not to close your oldest credit account, unless you have another with a comparably deep credit history. But if you have several credit card accounts, it is worth evaluating which have the best rewards, which you’re using the most frequently, and which you might be able to let go of.
Definitely get rid of your store cards. These tend to be used the least frequently and have shallower credit histories anyway.
Note: Don’t close several at once. If you need to close several cards, it’s a good idea to space it out over time.
Now, which accounts do you need to keep/add?
1. Checking account
You need a checking account. This one is really that simple, so let’s move on.
2. High Yield Savings Account
If you don’t already have a high yield savings account, it’s time to get one. And the account you signed up for with your very first checking account is probably not cutting it! Many banks, particularly online banks, offer savings accounts with APYs of over 2%. This may not seem like much, but it definitely beats the less than 0.1% offered by many banks. We have a whole article about which bank accounts will work the hardest for you. Hot tip: read the comments for extra good stuff, like why we hate money market accounts.
And don’t stop at just one high yield savings account. In fact, you should have one high yield savings account per short term goal. Short term is defined as anything you’d like to accomplish in the next two years or so; things like holiday shopping, travel, etc. Set up automatic deposits into these accounts to match your goals.
3. Credit Cards
Yes, plural. For an optimum credit score you should have 2-3 cards open, but you should only really need to use one. The most important thing is that you need to pay off the balance in full every month. Treat your credit card like a debit card, don’t spend what you don’t have.
(For some of our best tips on credit cards, check out: 5 of the Most Annoying Credit Card Myths Unmasked
4. Employee Sponsored Retirement Plan
If your employer offers it, USE IT. Especially if they match your contribution. If you ignored the 401k, 403b, or SIMPLE plan offered when you were hired, talk to HR and figure out how to sign up.
5. An IRA
IRA stand for Individual Retirement Account. The two most common options here are Traditional and Roth.
These accounts are where you save for retirement if you don’t have access to an employer sponsored retirement plan. It’s also where you should consolidate 401k plans from previous employers. Which you have depends on taxes and how much you make. There are new contribution limits for these accounts in 2019, which we break down here.
6. A Taxable Brokerage Account
This is where you save and invest for goals that are happening further out than 2-3 years, but before retirement; things like buying a house, saving for a wedding, etc. Taxable brokerage accounts are important for medium-term goals because you can take advantage of market gains, but you aren’t locking your money in until a certain time like you are with retirement accounts.
Quick recap of the most important accounts by goal:
- Savings accounts: Goals in the next 2 years.
- Brokerage account: Goals that are 2-30 years out.
- Retirement account: For retirement. Duh.