The High Cost of Financial Clutter

I am on a simplicity rampage. Just look at some of the posts from the last few weeks:

• 5 Benefits of Account Consolidation
• 5 Reasons to Dump Your Savings Account for a Brokerage
• 55 Ways to Simplify Your Finances

Clutter is a horrible disease. On the opposite end of the spectrum, simplicity brings a lot of peace and serenity to your life.

The etymology of the word clutter takes it back to the Middle English ‘clotteren,’ which meant to clot. Today, the verb is defined as ‘to fill or cover with scattered or disordered things that impede movement or reduce effectiveness.’ (from Merriam-Webster)

It’s this reduction in effectiveness that really scares me. If I can’t be at my optimum level of performance, I’m selling myself short. Everything I do will never be at 100%.

Financial clutter is particularly expensive, and not only in terms of time and effectiveness. Let’s look at a few ways in which it can really cost you to keep your money in a perpetual mess:

1. Unpaid Bills. If it’s out of sight, it’s probably out of mind as well. The most likely result of your mess is an eventual missed bill – hopefully, it’s one that doesn’t hurt your credit score.

2. Audit Problems. An organized fiscal year helps tremendously when it comes to tax time. But if you thought filling out your 1040 was difficult because you couldn’t find anything, wait until Uncle Sam comes to audit your paperwork.

3. Overspending. Disorganization typically extends to all areas of your financial life, including the budget. Without established boundaries, overspending quickly follows.

4. Lost Accounts. It might sound amusing to lose an entire account, but most people who have it happen to them don’t even realize it. They simply forget it ever existed.

5. Un-optimization. Having six different investment or savings accounts or not being able to find any of the paperwork is a great way to lose control of your asset allocation, or how well your money is working for you at the bank.

6. Inability to Borrow. Banks require proof of many, many things to loan you money. If you can’t find it, you can’t use it.

7. Stress. Running around like a chicken with your head cut off has been known to raise your level of stress significantly. Seriously.

8. Paradox of Choice. Having too many things to pick from results in not picking at all – it’s been proven. That large stack of papers you need to go through? It looks too daunting to even start.

9. Death Planning. Okay, no one wants to think about dying, but how will those you leave behind cope with your mess? Will it take months just to figure out what you were doing? Find your accounts? Pay the bills?

10. Identity Theft. Just because you don’t want to rummage through your paperwork doesn’t mean a thief won’t enjoy the experience. That statement you throw out instead of shredding because you are sick of looking at it might be the golden ticket.

11. Loss of Utilities. It’s bound to happen – you come home one day and your water is off. You run around checking pipes and switches, and realize…you didn’t pay your bill. Good luck getting it turned back on at 8 PM.

12. Inability to Return Items. Most stores like receipts, although more and more you can get store credit without one. I’d rather have my money back than some gift card.

13. Lost opportunities. If you’re spending all your time cleaning up messes, there’s no time for productive work. You can’t brainstorm new business ideas, optimize your systems, check in with your investments, etc, etc…

14. Duplicate Spending. We’ve all done it – you come home with something, put it in the closet, and realize you already have it, except it’s buried and hasn’t been used in three years.

15. Untapped Assets. There are plenty of things we don’t use anymore that could be sold – whether physical things, investments, or other things of value. Without a way to track them or find them, you’ll never get to it.

16. Unclaimed Insurance Claims. If you don’t know if you have insurance or how to claim it or what it covers, how can you expect to benefit from having it? Insurance companies don’t want to pay you – you have to claim what’s rightfully yours.

17. Unclaimed Warranties. Most new products come with warranties that guarantee flawless operation. How many of us actually go through the trouble of claiming it when something breaks? Have you ever read the packet that came with your product?

This list might be a bit overwhelming. Are you running scared?

There is a solution! Simply your financial life, organize the clutter, eliminate that which is unnecessary, and streamline your financial processes. Over the next few months, we’ll take a look at how to accomplish all of these without losing your mind!

How has financial clutter hurt you?

Photo by Evelyn Giggles