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TODAY MARKS MY 300th weekly contribution to HumbleDollar. Over time, one key theme has emerged: While personal finance can be complicated, it doesn’t have to be. How can you simplify your financial life? Below are 10 ideas.
1. Tracking donations. In the old days, it wasn’t too difficult to track charitable gifts. You would simply refer back to your checkbook. But today, most people use debit and credit cards, plus apps like Venmo, making it more of a chore to keep tabs on every transaction. Yes, there are digital solutions, such as Mint, but they all require some amount of maintenance.
That’s why, primitive as it may sound, I’ve found that a simple solution turns out to be the most effective: a humble manila folder. Simply label it “donations,” and then give it a permanent home on your desk or elsewhere in your home. Each time you make a gift, print out a confirmation or receipt and stow it in your folder. At the end of the year, it’ll likely require only a modest amount of time to total everything up.
2. Tracking spending in retirement. If it’s hard to track charitable donations, what about tracking overall spending? Again, you could use a tool like Mint. But if that isn’t for you, the best approach for retirees is to put their finances on autopilot. Set up consistent, automated transfers from your brokerage account to your checking account. You can then use your checking account as a barometer to easily track your spending.
Say you’re transferring $7,000 per month. If you find your checking account balance is rising over time, that tells you your monthly expenses are running at less than $7,000. On the other hand, if you’re regularly making additional transfers from your brokerage account, you know your expenses are running somewhere north of $7,000. Depending on your situation, you could either trim your spending to bring it under $7,000 or, if your plan permits, increase your monthly transfers until you’re running at breakeven. Either way, it’s an effective way to monitor your spending without much effort.
3. Tracking spending during your working years. If you’re in your working years, it’s harder to use the above strategy because money tends to come in from multiple sources, so a different approach is needed. I suggest using another relatively simple tool: traditional bank statements. Even if you receive statements electronically, you can print these out from your bank’s website.
Check out the summary at the top of the statement. There, you’ll find totals for dollars that came into and dollars that went out of your account each month. While subject to distortion from one-time items and funds transfers, these totals still offer a useful starting point. If you analyze perhaps six months of statements, that should provide a reasonable average. While sometimes a little imperfect, I find this approach far easier than trying to total up every little transaction.
4. Budgeting. In the past, bills arrived by mail, and it was the consumer’s choice when—or even if—to pay that bill. Today, it’s the opposite. Seemingly everything has turned into a monthly subscription, and they’re billed to our accounts automatically.
To make matters worse, if you also have your credit cards set to be paid automatically, you might find yourself in the situation a friend described recently: In reviewing his credit card statement—which he acknowledges he doesn’t do regularly—he was appalled to see not one but two Netflix subscriptions. It was for no good reason, and he’s not sure how long it had been going on. A practical solution I’ve found: Try to consolidate all your subscriptions onto a dedicated credit card. That way, these little charges can’t hide so easily.
5. Estate taxes. When it comes to estate planning, many are deterred by the cost and complexity involved. Consider irrevocable trusts. They’re a popular tool for getting ahead of estate taxes. But if you want to set one up, you’ll first have to find a lawyer, map out your wishes, decide which assets you’re willing to part with, choose a trustee and, finally, make peace with the ongoing complexity, including an added tax return each year. It’s a lot. If you’re materially over the estate tax limit, it’s absolutely what I recommend. But what if you’re not comfortable with, or not yet ready to commit to, an irrevocable trust? In that case, there are simpler steps you can take to chip away at your estate tax exposure.
For example, you’re probably familiar with the annual gifting exclusion, which allows tax-free gifts over and above the lifetime limit. This year, that amount is $17,000—the sum you can give to as many folks as you wish. Now, suppose you want to help your daughter with a home purchase, something that would require writing a much larger check of, say, $100,000. There’s a way to handle that without exceeding the annual exclusion and without too much complexity.
After writing the check, here’s how you’d account for it: Assuming you’re married, and your daughter is also married, you’d classify the first $68,000 as a set of four gifts under the annual exclusion ($17,000 each from you and your spouse to your daughter, plus another $17,000 each from you and your spouse to your daughter’s husband). You’d then structure the remaining $32,000 as a loan. In the following year, you could forgive that loan, including the accumulated interest—which the IRS requires you to charge on intrafamily loans—as gifts under the exclusion for that year. If this sounds complicated, my suggestion is to set up a Google spreadsheet to track your gifts, then share the spreadsheet with everyone involved.
6. Asset allocation. When building a portfolio, there are innumerable investment strategies and asset classes to choose from. But it doesn’t need to be complicated. When in doubt, you could employ the simple formula Warren Buffett recommends: an S&P 500-index fund combined with short-term Treasury bonds.
7. Withdrawal rate. Another topic on which there’s interminable debate: how much retirees can safely withdraw from their portfolios. Many believe in the 4% rule, while others debate that figure. Some say it’s too high. Others believe it’s too low. My view is that there’s no one-size-fits-all. A useful alternative, for a more personalized answer, is to consult the Trinity University study on withdrawal rates. It includes a helpful matrix showing the probability of success for various combinations of asset allocation and life expectancy.
8. Insurance. No question about it, insurance can be expensive, but there are two types that are relatively cheap: term life and umbrella. They don’t cost too much because the risks they cover have low probabilities. At the same time, those risks can be very costly if they do materialize, so I recommend that most people load up on coverage.
9. Taxes. As you probably know, there are two sets of tax rates that apply to most personal income: There are the ordinary income brackets, and then there are the rates for capital gains. This information can be invaluable for planning.
But look at your tax form, and it’s virtually impossible to see where you fall on each scale. How can you find out this information? Whether you work with an accountant or prepare your own returns, most tax software provides a summary sheet with your average and marginal tax rates for each category.
10. Just in case. With apologies for ending on a morbid note, it used to be that when someone died, it wasn’t too hard to piece together the deceased’s finances by simply opening his or her mail for a little while. But now, with most things electronic, it’s critical to put together a letter of last instruction.
In doing so, here’s a suggestion: Separate your letter into two parts. The first can be shared with an attorney, accountant or financial advisor, while the second might include more personal information and would be shared only with family members. Again, I recommend using Google Docs or another electronic format, which will make it easy to share the document and keep it up-to-date.
Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam’s Daily Ideas email, follow him on Twitter @AdamMGrossman and check out his earlier articles.
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I have a manila envelope called “Next Year Taxes”, not just for donation receipts but other tax information that comes during the year like IRA contribution confirmations, Health Coverage form from insurer, etc.
Adam, thanks for a lot of great information in a concise fashion.
Thanks Adam, really great information on a weekly basis.
Another plug for Quicken, although it takes a little extra time each month when I pay bills.
A little off topic, but when I looked back to see when I started using Quicken (1999) I was curious as to the past 24 years of approximate changes in monthly utility bills:
Trash pickup – $20 to $31 (+55%)
Cable TV – $22 to $190 (+760% with some increase in channels)
Home Phone – $35 to $20 (- 43% as part of cable package)
Cell Phone – $20 for 1 to $12 for 2 (-70% as part of cable package)
Water – $93 to $64 (we rarely water the yard anymore)
Electricity – 6.4¢/kwh to 13.8¢/kwh (+115%)
Heating Oil – 80¢/Gal to $8.67/gal (+983%!!) However, we only use about 350 Gal/year to heat almost 4,000 sq ft
That’s the kind of info that Quicken can give you in seconds.
I’m a fan of software as well. I use gnucash for both personal and business (invoicing, employee paychecks, etc) tracking. It is a free download for most operating systems. It is double-entry, which takes some getting used to, but now, after using it for probably 15 years, I really like the double-checking that it provides.
Yikes – $8/gallon for oil – that hurts. I was fortunate to be able to get a contract signed prior to the increase to $5 or $6 a couple years ago, (I was surprised they honored the $2.50/gallon price through those crazy rate increases). So far, I’ve never paid more then $3.50 here in the Northeast. (and since I consider even that price so high, I try to burn wood pellets as much as I can and leave the oil at minimum temperatures).
Thanks so much, Adam.
Regarding record keeping: Quicken is my best friend. I download daily from my banking/brokerage/credit accounts. Setting up useful categories really helps when you need a report. It’s also a useful way to notice fraud instantly e.g. when a charge from ‘*xyz*’ shows up unexpectedly. The horse is out of the barn if you wait until the end-of-month statement arrival .
(and by the way don’t EVER let a server/clerk handle or walk off to an unseen location with your credit card!)
Regarding withdrawal rates: The Vanguard retirement calculator is a fun and useful tool to play with.
https://retirementplans.vanguard.com/VGApp/pe/pubeducation/calculators/RetirementNestEggCalc.jsf
I use virtual credit cards for all online transactions, but I’m not really worried about in-person transactions. Credit cards have such good consumer protection laws, there isn’t any concern about losing any money. The worst part is changing auto-payments.
I’m far more worried about basically untraceable skimmers than an employee in a restaurant. But, again, I’m “worried” only in the sense that it would be an inconvenience.
I never use debit cards at a place of business and we use the ATM card every 4 months at our local branch to make sure they don’t cancel it. ATM/Banking laws are far more banker friendly than consumer friendly.
The vanguard hyperlink displays an interesting Monte Carlo simulation. However, for it to be somewhat accurate, you’d have to assume that 1) inflation will identically effect your nest egg AND your expenses and 2) social security money received won’t decrease (causes you to withdraw more) for those of us who’ve saved a lot during our working years.
Unfortunately, most restaurants walk off with a credit card and it’s not always possible to see what they are doing. Taking a quick picture of the card with a phone the server has in their pocket takes seconds. The two times I had credit card fraud was after using the card in a restaurant. I use a virtual card for all online purchases and I use tap and pay for buying gas so I knew the fraud was most likely when the server had access to it. We need to go to the European model where the server brings a credit card machine to your table and you swipe your card yourself.
After two experiences in a restaurant with a fraudulent server while traveling, I refuse to allow a server to handle my card. If they have to go to another location I go with them and either use contactless pay or insert/swipe the card myself.
Your comment about your credit card reminded me of a presentation by an identity theft expert. He once made a purchase, and the clerk went to another room, returned and he said, “Where is my card?” The clerk said, “I gave it to you.” The identity theft expert said, “No, you didn’t. See my billfold in my hand? It does not go back in my pocket until I get my card back.” A discussion ensued and the identity theft expert called American Express and told them his card had been stolen. There had already been three fraudulent charges made. It happened that fast.
Bottom line: Now I always keep my billfold in my right hand until I get my credit card back – even if the machine is right in front of me. Just a good loss prevention habit to get into.
Thank you for sharing your insights each week, Adam. You are a key fabric of HD community. Congrats on the 300th article milestone!
Adam, congrats on the 300 milestone, and thank you for all the wisdom you impart here. You have been a consistent source of valuable information, always delivered in a straightforward and easy-to-understand style.
Well done and much appreciated!
We opened a donor-advised fund with Fidelity five years ago to manage our donations. All of our regular contributions and many one-offs go through that. For the occasional donation via GoFundMe or to an organization that isn’t in Fidelity’s database, I always keep an email folder for the current year and just file the email receipts for those donations. Come tax time, I just have to list the contribution to the DAF and whatever’s in that email folder. It has really simplified that part of my tax filing process. I’m not big on paper.
(I am aware that once you’re old enough to make Qualified Charitable Distributions, you can’t use a DAF for that, but we have a few years to go before that’s relevant. We’ll cross that bridge when we come to it.)
I can’t say enough good things about Adam’s informative columns and about fidelitycharitable.org! Both terrific in their own ways.
Fidelity’s DAF interface allows for anonymous granting, too. An easy way to reduce inbox and mailbox solicitations.
Fidelity links all 501(c)(3) public charities to its database. Many GoFundMe causes are not 501c’s and gifts to them cannot qualify as tax deductions.
Congrats on your 300th, Alan. Impressive!
Re simplifying one’s personal finances, we are in the midst of a major re-configuration of our accounts since going into fully retired decumulation mode a year ago.
Up until now we have been juggling a main bank account used for checking and paying bills, a credit union account for a rewards credit card (which required monthly checking account deposits to keep the reward rate high), three high yield savings accounts, along with eight investment accounts at Fidelity. Moving money around has been a constant game of musical chairs, as we try to optimize high yield on liquid cash while making sure the low-yield checking account doesn’t run out of money.
Last month I decided I’d had enough of that. Too much time spent playing that game, rather than enjoying being retired. So I investigated what Fidelity could do for us in terms of cash management and high yield savings, and was suprised to discover that they can actually do it all, including the rewards card (2% cash on everything), free bill pay, and best of all, high yield savings. I was surprised about the last one, as I had recently discovered that the cash core account had a 0.4% management fee or something like that. Then I found out that it was yielding 4.7% net. While not the highest available these days for online banking, it’s not 0.1% or whatever bank checking accounts pay, and I have it set up to be our checking account for bill pays and ATM withdrawals, along with having it attached to their Visa card.
Net net, it means that we could literally close all of the other bank accounts and credit cards and do everything in one place, with one monthly statement. Pretty cool, I think.
We’ll still keep at least one other credit card account going so we have a backup in case we need one. But other than that, I’m in the process of closing all our other accounts. This is going to greatly simplify our financial life and I can’t wait to start getting the statements with everything in one place.
You may wish to freeze your prior credit cards rather than close them. You might have a hit to your credit score, if it matters at this point in your life.
tshort, Is this the Fidelity Cash Management Account? They don’t say anything about management fee on their website, not that I could find. Is it for the FDIC-insured Deposit Sweep? Thanks
Not technically – it’s the cash position in one of our brokerage accounts that we have set up as a CMA with checking, debit cards, bill pay, etc. Each brokerage account has a core cash position for dividends, proceeds from trades, etc. In our case, that’s SPAXX, which is a Federal Money Market fund with a 4.75% yield (net) and a 0.42 ER. All accounts are FDIC insured.
If you look at their CMA as a stand alone account, it’s showing a 2.60% APY. So that must be something different. Not sure as I never looked at it before – just started using our taxable brokerage account for cash management.
SPAXX is not FDIC insured.
The 2.6% seen in the Fidelity Cash Management Account is for the FDIC-insured deposit sweep that kt2062 refers to.
This is in the actual CMA, not to be confused with using a regular brokerage account for cash management. The CMA comes with a couple of features that a regular brokerage account doesn’t.
“Seemingly everything has turned into a monthly subscription, and they’re billed to our accounts automatically.” I use Quicken and have “Tagged” all my subscriptions so I can run a report and see all of them listed. Gasp.
The May 1956 issue of Fortune Magazine had an article titled, “Budgetism: Opiate of the Middle Class” by William H. Whyte Jr. The “intro” read:
“These young people who someday will run our capitalist economy—how do they run their own? Atrociously. They are so bemused by the rhythm of equal monthly payments; they hardly think about the cost of money at all.”
The article pointed out that a budget was not needed because every dollar was spoken for by required monthly payments. Back then it was appliances, car payments, mortgages, etc. The article went on to say, “They can rattle off most of their monthly payments down to the last penny; even their “impulse buying” is deliberately planned. They are conscientious in meeting obligations, and rarely do they fall delinquent in their accounts.”
I cancel many of my subscriptions right after I sign up. You can always signup again and it helps me control them, along with my Quicken reports.
Congratulations on the 300th post.
I have been using Quicken since 1999, so all of my data is readily available, and I check my status (income vs outgo) every month when I download data from my bank and credit cards.
Since I sold my house virtually all my assets are financial, and are consolidated at Vanguard. I have designated beneficiaries on the IRAs and Transfer on Death on the brokerage account. Estate taxes are not on my list of things to worry about, but I do need to write instructions for my British beneficiaries about how to handle the IRAs…..
I never miss one of your posts, and I always learn something. Thanks for all you do!
Congratulations on #300!
Quicken has been my go-to software for decades. One’s account activity can be downloaded from bank and credit card accounts, which saves on data entry. I know Mint and YNAB are other popular software solutions.
Credit card statements often have spending summaries, so that is another tracking tool.
Of course, there is always Grandma’s & Dave Ramsey’s cash-in-an-envelope method for budgeting. A hybrid method one could use is a certain credit card is used only for food– groceries and dining out, then no need for one’s cash to be at risk of loss.
Thanks so much, Adam. I was glad to mentally check off several items as “already doing that” (paper donation tracking, auto pay of bills), and others are now on my to-do list (more detailed estate planning for one). Appreciate your columns very much.
Excellent and thoughtful article as always from Adam.
Our trust starts as revocable and it becomes irrevocable after the first spouse dies. Only then would an extra tax return be required so that may be more palatable to some considering a trust .
Two years ago we gave our single daughter $100,000 to help with a home purchase . We didn’t structure it beyond that simple check, though we did have to file a gift form with our tax return and provide a letter to the bank where she applied for the mortgage stating that the gift was part of her down payment. It’s not likely we will be subject to the Federal estate tax as the code exists today, but we will owe estate taxes to our state. The type of trust we have (credit sparing) will help reduce what we owe to some extent.
Adam…so glad most of my financial planning is validated by someone as smart and knowledgeable as you are. Just as important, Adam, in your writing you come across as the quintessential gentleman.
Adam, your 300 articles are packed with important and useful information, succinctly presented. Thank you!
That 300 articles is quite an achievement. And I agree, Adam provides a lot of useful information.
Regarding the strategy for making a large gift without reducing one’s estate tax exclusion: the underlying assumption is that one’s estate is or will be big enough to have an estate tax liability down the road. But few people actually face that prospect, particularly if (a big if) the exclusion remains very high. Adam how would you suggest taking the prospect of not ultimately having an estate tax liability into consideration when trying to manage substantial gifts to children, when the gift is, say, much larger than $100K?
For the great majority of us who will not have an estate tax liability the primary planning focus has seemed to shifted to keeping income tax at a minimum on assets gifted during life or bequeathed at death. The secondary consideration is keeping the the compliance costs of the primary consideration at a minimum.
I like Adam’s theme of trying to simplify your financial life.
I think the other focus — for those of us who live in such states — is minimizing the bite from state inheritance and estate taxes. That’s more of a concern, given that those kick in at far lower asset levels than the federal estate tax.
I have always viewed inheritance and estate taxes as double taxation. I was glad when my state, Tennessee, repealed it’s inheritance taxes after 2015.
I look forward to reading your post every Sunday morning.
PS: What day is this?
I wanted to make sure Adam got the recognition he richly deserves, so I pushed him to write his weekly piece early so I could lead the Saturday newsletter with his 300th article.
Nice thing to do, Jonathan. Thanks. You’re both consummate gentlemen 😊.
Excellent post.
Agreed! I enjoy reading your posts!
Happy 300th Adam 🎂🥂 and thank you for so many great posts! We are all wiser and wealthier for the wisdom you’ve shared.