Wallet Hacks

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 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. 🙂