The most insidious debt of all

Every day, once we get home, we toss our stuff on the island in the kitchen. Over time, things accumulate and eventually we run out of space. Things that should be put away aren't because they're pushed to the side and stacked up, for no good reason other than a taller pile takes up less space!

Then, every few days, we clear off the island. Everything gets put in its place and we resolve to do a better job maintaining the cleanliness of the island.

The sneakiest most insidious debt of all isn't what you think. It's not credit card debt. It's not student loans. It's something far more expensive.The same thing happens in our financial systems. Over time, the rats nest of accounts makes maintaining it a whole lot harder. As we near tax time, how many 1099-INTs are you waiting for? Those are the tax forms sent by banks to report interest payments – you'll get one from each bank account.

This complexity debt must be paid off and the only currency it accepts as payment is your time.

If you had to list, in order of severity, the different types of debt – which would you list first? High interest credit card debt? Payday loans?

I'd argue that the first one on the list should be complexity debt.

Complexity debt is an idea I'm borrowing from my days in software. In software, it's known as technical debt. It's when the complexity of your software makes it much harder to maintain it, change it, or improve it. Sometimes that complexity is necessary, we're trying to solve difficult problems, but sometimes it's complicated because no one thought to clean it up.

The same idea exists in many parts of your life.

Years ago, I went through this time consuming process of reducing the number of bank accounts, consolidating lines of credit, and closing as many accounts as I could. I realized that with so many accounts, I was dreading having to do anything with them. If I needed to move funds, I wouldn't know what account was meant for what. It was a mess and so I'd delay simple things like paying a bill until a couple days before it was due (this was before bill payment systems synched with my utility).

So many decisions that should be trivial weren't because things were too complicated. And unnecessarily complicated.

So I resolved to clean it up. It started with my Net Worth Record, which listed every single account we had. I was also sick of logging into each account to download it (I'd tried Quicken but that was kind of a mess, now I use Personal Capital). I decided which ones I wanted to keep and closed every other bank account.

Then, I redrew my financial network map.

It feels so good knowing how simple our system is now. If we have a check to deposit, it goes to our Ally checking account. Paypal flows to a firewalled checking account in CapitalOne360. All bills are paid through Ally. All investment transfers flow in and out of Ally. So simple, no thinking required, everything is set.

The best part is that simplification is easy. You just cut away the fat and you can do it over time. I made it a goal to close one account a week and within a few weeks I was done. Each closure came with a slightly different process but simplifying the system was straightforward.

The best part now is I stopped getting a million 1099-INTs for the cents each from all those random bank accounts. πŸ™‚

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About Jim Wang

Jim Wang is a thirty-something father of four who is a frequent contributor to Forbes and Vanguard's Blog. He has also been fortunate to have appeared in the New York Times, Baltimore Sun, Entrepreneur, and Marketplace Money.

Jim has a B.S. in Computer Science and Economics from Carnegie Mellon University, an M.S. in Information Technology - Software Engineering from Carnegie Mellon University, as well as a Masters in Business Administration from Johns Hopkins University. His approach to personal finance is that of an engineer, breaking down complex subjects into bite-sized easily understood concepts that you can use in your daily life.

One of his favorite tools (here's my treasure chest of tools,, everything I use) is Personal Capital, which enables him to manage his finances in just 15-minutes each month. They also offer financial planning, such as a Retirement Planning Tool that can tell you if you're on track to retire when you want. It's free.

He is also diversifying his investment portfolio by adding a little bit of real estate. But not rental homes, because he doesn't want a second job, it's diversified small investments in a few commercial properties and a farm in Illinois via AcreTrader.

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  1. Holly Johnson says

    I closed a few bank accounts earlier this year. It was a pain, but I feel better knowing my money isn’t spread out everywhere. I will do anything to simplify my life at this point!

  2. Samir says

    Travel hacking leads to explosion of accounts. They play no role in one’s core financial life (other than subsidizing travel expenses), but they get connected to those core accounts all the same.

  3. Kyle says

    Thanks for the reminder, I have an extra checking account that I need to close. I opened a new account with Huntington for their signup bonus, and I’m past the period where they would ask for it back if I close my account. I’ve been meaning to do it for a while but I think they require that I do it in person iirc? Which sucks because bank hours are sometimes even more inconvenient than the DMV (or BMV here in Indiana).

    I still have a Chase account that I can’t close until August, but that one was definitely worth the $300 signup for me. I think I’ve spent maybe two hours total in opening it, setting up direct deposit from work to avoid fees, and then setting up the auto transfer back into my primary account. I can’t wait to get it off my to do list though!

    Thanks again Jim! Hope you’re having a nice day.

    • Jim says

      I hate those “have to cancel in person” things but B&M banks tend to work that way… I guess they want to see yoru smiling face. πŸ™‚

      Those bank promotions can be lucrative AND they don’t hurt your credit. πŸ™‚

  4. Ryan says

    Hi Jim,

    Can you clarify this statement for me: “Paypal flows to a firewalled checking account in CapitalOne360”? Does that simply mean you don’t link your Paypal account directly to your primary Ally deposit account? If so, is that just done for an extra layer of security between Paypal & your primary deposit account?

    Thanks!

    • Jim says

      Yes, you have it pretty well understood. With CapitalOne360, you can create additional accounts in a few button clicks. I have a checking account marked “Paypal” and it has $1. It’s connected to Paypal.

      If someone breaks into Paypal and tries to transfer money, they’ll at most get $1.

      If I need to transfer money to Paypal from that account, I log in, transfer the amount I need, and then in Paypal make the transfer.

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