Einstein said there are five ascending levels of intellect:
- and simple.
So many times, we think that complicated strategies are inherently better. But have you seen Einstein’s theory of mass-energy equivalence? The one where he challenges all conventional notions of matter moving in space and time? That puppy is simple.
E = mc2
The longer I live (and the faster our world seems to move), the more I appreciate the profound beauty and ease of simplicity. It’s why we’ve embraced the principles of minimalism and work to keep our lives as simple as possible.
It’s also the reason we’ve gone from having five bank accounts to two. It’s why we’ve consolidated our investments from three companies to one: Vanguard.
When we first wised up about our finances, we had a checking and savings account, two credit cards, and lots of investment accounts at different banks or firms. Some were from my college investing days (Ameritrade), some were from Mr. ThreeYear’s work. We had credit card balances on three different credit cards and 529 account. It took so much mental energy just to keep up with the payment due dates.
Now, our finances look a little simpler:
- One checking account (a regional bank headquartered in the town next to ours. We also hold our mortgage with this local bank).
- One savings account (Capital One 360). We use it to hold our emergency fund. It gives a low, .75% yield, but it keeps our emergency fund out of our checking account so we’re not tempted to spend it. It would take about 2-3 business days to transfer that money to our checking account (they are linked) if we had an emergency.
- One 401K account (Principal). We have no choice over this–it’s the firm Mr. ThreeYear’s company uses. However, we have one fund comprising our 401K–the LargeCap S&P 500 Index Fund. It has the lowest total investment expenses of any equity fund Principal offers–.18%.
- One investment company (Vanguard). We keep my i401K, our Roth IRAs, IRAs, and the kids’ 529 accounts housed in our Vanguard account. This is where we’ll open our taxable account next year as well. We keep everything invested in one of four funds at Vanguard, and Admiral Funds when possible–Vanguard 500 Index Fund (VFIAX), Total Stock Market Fund (VTSAX), Total Bond Market Fund (VBTLX), and the Total International Stock Index (VTIAX). If you’d like a step-by-step tutorial for opening an individual 401K account, check out this post I wrote.
Much has been written about the brilliance behind the buy-and-hold index fund strategy. I won’t add my two cents to the fray. I’ll only say that we now follow Warren Buffet’s advice: Rule 1. Never lose money. Rule 2. Never forget Rule 1. (I say “now follow” because I have lost plenty of money for our family due to some bone-headed financial decisions early in our marriage. I don’t think Mr. ThreeYear has ever really lost money for us, except for a few lottery tickets he insists on buying every now and again. But we won’t even get into that, because then I’d have to tell stories about the thousands I lost… maybe one day. Not spilling that story yet).
We are more than happy for consistent, average returns since all of our investment eggs are not in one basket. And we have adored Vanguard. Truly. They have phenomenal customer service, walk you step-by-step through opening whatever account you need, and have the lowest fees in the industry. Plus, you can see all of your various accounts at one time when you log in. Easy.
- We also have a bank account in Chile (Santander). This is the bank we use to pay the mortgage of our Chilean apartment. I’m a fan of eliminating this account when we pay off that mortgage, but Mr. ThreeYear makes the point that it’s really hard to open bank accounts in Chile, especially since we don’t live there anymore, so we should keep it. Time will tell.
- We currently have several open credit cards–Barclay Sapphire, Citi AAdvantage, and the AmEx SPG. This goes against our simplify philosophy, but we only use one at a time as we work towards minimum spends to earn sign-up bonuses. We’ve opened several cards during the past two years to get credit card rewards, because we’re saving up points to fly to Chile this December. So far, we’ve earned almost 100,000 AAdvantage miles this year with credit card sign-up bonuses and travel, so that is not a bad deal at all. I’ll write a future post about the specifics behind how we did this.
We can access all of these accounts online. I have an index card in my desk drawer with each account website, username and password written on it.
Our investments and savings are automatically pulled out of our paychecks every two weeks and transferred to our investment accounts. It’s much easier to never see that money and spend what’s left.
Our recurring bills–cell phone, internet, propane, electricity–are on auto pay, and are paid from our checking account (unless I have figured out how to pay them by credit card for the points) as are our semi-yearly bills like insurance. We have been using YNAB for budgeting since January, which encourages you to get a month ahead in your budgeting, so we know we have plenty of money in the checking account to cover any of those bills that come out (even if I forgot to budget for them).
Our credit card bills are also on auto pay, paid directly out of our checking account. YNAB earmarks money for us so that we know we have budgeted enough to cover the credit card.
I log in to YNAB every three days or so to categorize new spending and budget new income. I also monitor our accounts through Personal Capital, so that I can see all our bank account balances at one time, in one place.
And that’s basically it! This is our simplified answer to what can feel complicated and overwhelming.
We’re always looking to simplify more, so if you have any great bank account simplification ideas, please let us know in the comments!