5 Steps to Organizing Your Finances
, by Rob Kaufman
It's almost spring and for many people that means spring cleaning - airing out closets, washing windows and a whole lot of dusting. Doing this helps keep your house in order while getting ready for the upcoming season.
The same should hold true for your finances. By organizing your finances (and your budget), you'll be able to know where you stand each month when the bills come in. You'll also be able to see where you're heading for the year... and for retirement when the time arrives.
When it comes to spring cleaning your finances, there are 5 steps to follow to help you stay organized. We'll start with the easiest first...
Group your financial accounts
Take all your accounts that have "value" and list them out (either on a spreadsheet, software or a notepad). These don't include accounts like insurance. They should only include accounts with monetary value, such as:
Banking: checking, savings, CDs and money market accounts
Debt: credit cards, auto loans, mortgage, personal and student loans
Investments: brokerage
Retirement: 401(k), 403(b), TSP and IRA accounts
Once you have your list in place, make sure you know each account's balance. You must also keep track of any transactions that occur within these accounts. It's the only way you'll know your worth and what your financial future looks like.
Choose your tracking device
So now that you have all your accounts listed, how will you keep track of them? You can use paper and pen and manually keep track of all balances and transactions. That method is a lot of work and errors can easily be made. There's always the spreadsheet approach. However, that also is a lot of work and you can't get real-time data unless you go online and check all your accounts.
That leaves us with the software method of tracking. Once you input your accounts into the software of your choice, you sync them with your online accounts. This allows you to automatically download transactions and update all account balances. There's still a little work in order to categorize things correctly, but since it's mostly automated, you should save a lot of time, work and mistakes.
Keep an eye on your budget
You do have a budget, right? If not, you can find out how to create one here. Having a budget allows you to see how much money is coming in and going out so that you can prepare for the current and/or future months. Without a budget, you won't know income and expenses, and that can lead to debt.
Think about it this way: some of your monthly bills might vary. Electric, for instance. It might be higher during the summer when the air conditioning is constantly running. If you have a budget, you can prepare for that. If you don't have a budget, where's that extra money going to come from?
Pay bills the day you receive them
This might sound easier said than done. However, if you've followed the three steps above, you should have money on hand to pay bills as they arrive. Before paying these bills, make sure there's enough in your bank account to cover them And allow for any outstanding debit charges that might show up in a day or two. You don't want to cause an overdraft and end up paying a fee.
Again, if you're keeping your accounts organized and have a budget that compares income to expenses, you should be able to pay your bills immediately and not let them build up. Letting bills linger will make organizing your finances a lot more difficult.
Consider having two bank accounts
It might be a good idea to have one account for discretionary spending (dining out, unnecessary purchases, etc.) and another account for paying bills. This allows you to avoid accidentally spending bill money on an expensive dinner you enjoyed because you weren't in the mood to cook. It's just another way to help keep your money where it should be and your finances organized.
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Rob is a writer... of blogs, books and business. His financial investment experience combined with a long background in marketing credit protection services provides a source of information that helps fill the gaps on one's journey toward financial well-being. His goal is simple: The more people he can help, the better.