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Consider uncluttering your financial life

Posted: Friday, December 26, 2003

NEW YORK (AP) Tired of dealing with a blizzard of bills every month? Confused by a flurry of statements from savings accounts old and new, large and small? Overwhelmed by stacks of documents when taxes are due?

Maybe it's time you tried to simplify your financial life.

Doing so, experts say, can help you get a handle on your spending, your debt and your savings.

''The advantage of simplifying is that it gives you control and understanding and comfort,'' said David Diesslin, a financial planner who heads Diesslin & Associates in Fort Worth, Texas. ''From that you can build confidence in what you're going to do because you can focus on what's relevant.''

Where should you begin?

Diesslin suggests consumers cut down on the number of credit cards they hold and consolidate savings accounts.

''The simpler you make it, the easier it is to understand,'' he said.

He also advises consumers to take time each year to calculate their net worth. That's the value of everything you own, including your home, minus the money you owe.

''It's a baseline to help individuals plan,'' Diesslin said. ''It allows you to see if you've enhanced your personal economic situation or not over the course of the year.''

Diesslin points out that if the only thing that has improved during the year is the value of your home, it could signal the need for change. Someone close to retirement, for example, may need to take a hard look at the added expenses such as real estate taxes and insurance that will increase the cost of maintaining the home after paychecks stop. A younger couple may need to think about stepping up savings.

''You have to ask yourself the questions, 'Am I where I want to be? If not, what will I do differently to get somewhere else?''' he said.

Rande Spiegelman, vice president for financial planning at the Schwab Center for Investment Research in San Francisco, notes there are a number of psychological reasons why people keep many different accounts.

For one thing, consumers tend to compartmentalize a bucket of money for the children's college educations, another bucket for retirement, yet another bucket for travel.

''There's nothing wrong with different accounts for different objectives,'' Spiegelman said. ''But at some point, it's important to look at your whole portfolio to see what you can gain from consolidating.''

You may, for example, be paying fees at some financial institutions because you're not meeting minimum balance requirements, he said. Or you may not be aware of the risks you're incurring because you're not properly diversified across all the accounts, he added.

And consolidating Individual Retirement Accounts will make it easier to see what you've got now and how much you're likely going to be able to draw when you stop working

''Fewer monthly statements means less to keep track of, giving you more time to work on strategy,'' Spiegelman said.

When it comes to debt, he suggests consumers try to rid themselves of credit card and personal loan debt by paying it off with a home equity loan or line of credit, which probably qualifies for tax deductions.

''But you have to make sure you don't run up another big credit card bill,'' Spiegelman said. ''If you don't pay off your charges on a monthly basis, it's all for naught. And you've put your home on the line.''

New York-based financial adviser David Bach says one of the easiest ways to simplify your financial life is to put it on autopilot.

''Americans aren't lazy,'' Bach argues. ''The reason we're not saving, the reason we're late on credit card bills, the reason we're not paying our mortgages off early is that we're too busy to focus on it.''

Bach, in his latest book ''The Automatic Millionaire,'' outlines a dozen ways that consumers can increase their financial well-being while reducing the time it takes to do so:

Use an automatic payroll deduction to fund your tax-sheltered retirement account.

Bach suggests that consumers aim to set aside the equivalent of one hour's earnings per day.

Start using automatic bill paying systems.

Many utilities, Internet service providers and other companies encourage consumers to have their bills debited directly each month from their checking or savings accounts.

Increasingly, Bach added, consumers are moving to online bill paying, using a single site like www.Paytrust.com or www.Quicken.com to set up monthly payments for recurring bills.

Have your mortgage payment paid automatically from your bank account, and consider changing from a monthly to a biweekly mortgage payment plan.

Instead of 12 monthly payments, you'll make 26 biweekly payments and pay down your mortgage much faster. Bach said the average American will save $45,000 or more in interest payments over the course of a 30-year mortgage loan.

''You just have to do this once,'' Bach said. ''Then you don't have to worry about motivation because you can depend on the automation.''

On the Net:

www.diesslin.com

www.schwab.com

Bach's site: www.finishrich.com



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