Personal Finance 

How to Hard Reset Your Financial Life

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We have twelve bank accounts.

You read that correctly, we have twelve accounts.

Ally Bank, FNBO Direct, ING Direct, HSBC Direct, Bank of America, M&T Bank, … the list goes on.

We also have a dozen credit cards. Citi, Discover, Capital One, … again, the list goes on.

We have so many accounts because we’ve slowly acquired them over the course of the last ten years. Our financial network map is an intricated mess despite our best efforts to simplify our personal finances.

That’s why we need to hit the reset button on our financial life.

How do you hit the hard reset? You wipe it all away and start over.

Drawing Your Ideal Map

You start by drawing your ideal financial network map. Imagine a world in which you have one or two credit cards, one bank account (checking and savings), and one broker (retirement or taxable account). How would that look?

Probably like this:
Hard Reset Financial Map

What is this simple system missing? Perhaps an online savings account with a higher interest rate? Add that in.
Hard Reset Financial Map with OSA

Anything else? Repeat this process until you have the simplest network you possible can, being as specific as possible (use bank names, use card names)

Now, how do you get your current financial network map to look like your utopian financial network map?

Create An Action Plan

Create an action plan to get from your current map to your ideal map. This will be a simple list of steps you’ll need complete to consolidate everything down to the absolute basics. It’ll look something like this:

  1. Transfer all funds from Emigrant Direct to Bank of America,
  2. Close Emigrant Direct account,
  3. Call Citi and consolidate Citi Platinum Select card limit into Citi mtvU card,

Then do each step on the map until you’re done!

Some Helpful Tips

  1. Closing bank accounts will not affect your credit score, so feel free to close without any negative impact.
  2. In closing bank accounts where you have both a savings and checking, transfer all the funds into your checking before requesting closure. I ran into this problem with Washington Mutual when I closed my account there, I had to close the savings first, then the checking. Confirm with your bank first.
  3. With an online bank, electronically transfer all your funds out, leaving only the minimum balance. When you close an account, they will want to mail you a check. By transferring it out first, you limit how much is stuck in limbo.
  4. I recommend having two online bank accounts to diversify, in the event one is inaccessible for technical reasons.
  5. Closing credit cards will likely reduce your score, so consolidate credit limits where you can. If you favor simplicity over a high score, close away. If nothing else, stick the card in your desk drawer (though the issuer may close it for inactivity). If you opt to “box” a card, keep it on your map but annotate it.
  6. Rolling over broker accounts can be a great way to reduce your costs as well, as higher balances typically get more favorable treatment from the broker. I advise making transfers over holidays so that the time your investments are out of the market is limited.
  7. If you are transfering and closing from one broker to another, take advantage of transfer promotions brokers may be offering. For example, TradeKing will refund up to $150 in fees if you transfer from another broker. Many brokers are offering this type of promotion.

I call this a hard reset because you’re starting from scratch. With this approach, you can build a system that is both simple and works for you. This afternoon, I’ll show another approach that is similar. I call it a “soft reset” because you don’t start from scratch, you simplify your network until you reach that ideal map.

{ 15 comments, please add your thoughts now! }

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15 Responses to “How to Hard Reset Your Financial Life”

  1. Miranda says:

    I like this idea of a hard reset. Sometimes we let things get out of hand, and it seems that suddenly things are a tangled mess. It is good to review your financial life every now and again, and put together a plan that works better.

  2. Jim says:

    Yeah, this afternoon I discuss how to do a soft reset if this seems too extreme. Either way, it’s always important to take stock and try to simplify things.

  3. Viviana says:

    This is a great idea. Simplifying accounts and credit cards makes life so much easier. The less cards you have the less likely you are to forget a payment.

    I would love to reset my Credit Cards but I need to chip away at more of the debt first.

  4. dilbert69 says:

    If you never plan to use a card again but want to keep it open so as not to impact your credit score, you may want to consider running it through the shredder.

  5. MoneyNing says:

    I used to joke with my wife that all her credit card limits added up allow us to seriously bid for a whole country (were one be for sale).

    This is a great idea, but when closing accounts, mind the transactions that aren’t booked in the accounts yet.

    For example, bank accounts may have uncredited interest rates. Brokerage accounts may have uncredited dividends etc. Do your homework to make sure those won’t make the closure a little messier than need be.

  6. None of us really need more than maybe one credit card each anyway, so the more closed the better.

    As far as the bank accounts, three or four are probably better than one, given the current banking situation. We’ve had failures/shotgun marriages with a couple of the banks we deal with, and while none went under, the customer service did get a bit weird.

    • Jim says:

      While true, unfortunately closing accounts can hurt your credit score. 🙁 What a system, huh?

      • So true, but I’d rather eliminate the temptation, er credit cards, and suffer a small drop in my score. Staying out of debt is a tangible benefit, a credit score is mostly a decoration–unless you use a lot of credit.

        • dilbert69 says:

          Everyone who has a mortgage uses a lot of credit. A high credit score can save you tens, if not hundreds, of thousands over the life of the loan if you live in a high-housing-cost area as I do. Also, credit cards aren’t a temptation for me (I spend well below my means), but I realize they are for some.

    • dilbert69 says:

      Not quite true. I have three credit cards which give me rewards, one on supermarkets, drugstores and gas stations; one at a large online merchant I shop at frequently for all manner of goods; and one which gives me enough frequent flyer miles that I can fly from California to New York each year for free to attend an important annual event. Also, outside the USA, some merchants take VISA or MasterCard but not the other. So at a minimum, if you travel, you should have one of each.

  7. Lazikiwe says:

    You probably need to write another plan for those of us with a financial life that has already hit buttom, with credit cards that have been closed and credit score that have been decimated

  8. Solid advice– sometimes you need to rethink and reevaluate your situation and this is a good approach.

  9. eric says:

    I’ve noticed that the amount of accounts I have is slowly increasing too. It’s like subtly putting on weight. Bad, bad, bad.

  10. well... says:

    Funny map though…

  11. Stacy says:

    I really like the “financial map” concept. I’m going to apply this into my financial strategy so i can get out of debt.

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