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How to Hard Reset Your Financial Life

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 [3]. 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:

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

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.