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Today we have a guest post from Marc from VitalDollar.com on how to organize your financial life. If you’ve been struggling to save up money, pay off debt and get yourself on track with savings, Marc’s step by step instructions will set you on the right path to money management.
In order to get the most out of your money, you’ll need to have your finances in order. An unorganized financial life can easily lead to problems like unnecessary debt or fees, slow growth due to a lack of direction, and missed opportunities.
With effective organization you can use your money efficiently, and getting organized doesn’t have to be difficult.
To take a practical approach, let’s look at 10 steps you can take to get your own financial life in order.
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Step 1. Track Your Spending
A big part of being organized financially involves knowing where your money is going. If you don’t know how you are spending your money, it’s virtually impossible to manage it effectively.
If you haven’t tracked your expenses in the past, you may be surprised when you see how your money is actually being used. Knowing exactly how much you are spending on different things will probably help you to easily identify a few areas where you could cut back and have a big impact.
After I graduated college I started tracking every dollar I spent, because I was barely making enough to get by. Tracking expenses was a huge factor that helped me to be able to live on a low income without going into debt. It helped me to see that every expense mattered, and every dollar was important.
There are a few different ways you can go about tracking your expenses. You can use a simple spreadsheet and enter your expenses at the end of each day. There are also a number of apps that make it pretty simple, like Mint, Personal Capital, and Tiller.
Step 2. Create a Budget
Tracking your expenses and budgeting go hand-in-hand. I listed tracking expenses first because I think it’s really helpful to have that data when you’re working to create your budget. It’s possible to create a budget without tracking your expenses first, but you may wind up with an unrealistic budget.
If you know exactly how much you are spending in the different budget categories before you create the budget, you can know that your budget is realistic and possible.
There are a lot of different resources online that can help you to create a budget, including Melissa’s article How to Set Up a Budget. You can also use apps like Mint or Tiller.
A budget is an important part of the plan to organize your financial life, and a lot of financial challenges can be overcome with a commitment to budgeting.
Step 3. Keep Track of Due Dates for Your Bills
Losing track of your bills can lead to late fees, penalties, and interest that can be easily avoided. Almost all of your recurring bills will have a regular due date, so they are easy to track with just a small effort.
Exactly how you track your upcoming bills is up to you. You could have a simple spreadsheet or list on your computer, or write them on your calendar. If you’re using an app like Mint or Personal Capital you can take advantage of the functionality to see your upcoming bills.
When you know the bills that will be coming up and when they are due, it’s easy to make sure they’re paid and nothing slips through the cracks.
Step 4. Automate When Possible
There are a few different ways you can automate your finances and more automation means easier organization.
First, set up automated payments for as many bills as possible. A lot of your monthly recurring bills can be paid automatically by credit card or bank transfer. Automated bill payments have several benefits, including:
- Reducing the time you need for paying bills each month
- Assuring that payments will be made on time
- Eliminating the possibility of late fees, penalties, and interest
- Reducing the number of checks and stamps you need to use
Second, if you have a 401(k) plan through your employer, you can set up automatic contributions. These contributions will be taken out of each paycheck before you’re paid. It will reduce your take-home amount, but it makes saving for retirement easy and automatic.
Third, you can also set up automated savings from each paycheck. If you’re paid by direct deposit you may have the option to have the payment split between different accounts. You could have the majority go to your checking account, and set up a smaller amount from each paycheck to go directly into a savings account.
If you don’t have the option to get your paycheck direct deposited to multiple accounts, you can still set up an automation with your own bank. Have all of your take-home pay deposited to your checking account, and set up an automated transfer with your bank that will move a certain amount from the checking account to a savings account.
Making savings automatic is one of the best things you can do to simplify and streamline your financial life.
Step 5. Set Up a Filing System
Even though a lot of bills are now paperless, I’m sure there are some bills that you receive in the mail. You may also get paper statements for your bank accounts, credit cards, and investment accounts if you haven’t set up paperless statements.
Having an effective filing system is really helpful for keeping your records in order, and assuring that you don’t miss bills that are due.
How you file documents is a matter of personal preference. I have folders for statements from each of my financial accounts, and folders for other categories of expenses (things like car maintenance and repairs, anything related to my home, insurance, etc.).
Personally, I don’t spend much time filing. When I get a document to be filed I put it in a stack to be filed, and then once a month or so I take a few minutes and file everything at once. It’s an easy system that doesn’t require a lot of time, but it still keeps all of my documents organized.
Step 6. Have a Place for Bills That Arrive by Mail
Even if you have automated as many bills as possible, there are some bills that you will still receive in the mail. If you’re like me and you prefer to automate or pay online, it’s easy to overlook these bills that don’t fit into those categories.
The best practice is to have a spot somewhere for bills that come in the mail. Don’t just stick them in a random pile of papers somewhere or you’re likely to forget to pay them.
It doesn’t matter what your system is, but have a place where you can put any bills so you’ll be able to easily pay them on time.
Step 7. Pay Bills as Soon as You Receive Them
If you want to make sure that you don’t forget to pay a bill later, take the time to pay it as soon as you get it. Many of your bills will have a due date that gives you plenty of time to pay it, but there is no harm in paying it right away. In fact, paying it immediately is the best way to ensure that you don’t forget about it or lose track of it. Paying bills immediately also makes your organization easier.
Step 8. Set Financial Goals
One of the best things you can do for your financial life is to set some goals. Goals give you something to work towards and help you to stay focused on what matters most to you, regardless of whether that is saving $1,000 to start your emergency fund or paying off your mortgage by a certain age.
Your goals should be specific and measurable, and have an end date or deadline. Some possibilities include paying down a certain amount of debt, saving or investing a specific amount, or reaching a net worth milestone.
Tracking net worth may seem like something that isn’t important if you’re young and just getting started on your financial journey, but that’s not really the case. Net worth is one of the most important financial measuring sticks, and it’s extremely useful for giving you an overall picture of your financial health.
I’ve found net worth goals to be one of the biggest motivating factors that helps me to stay on track financially. There are several convincing reasons why you should track net worth, and one of those reasons is that it provides a measurement for your progress.
Step 9. Create a List of Your Accounts
An important step for organizing your finances is to have a list of all your financial accounts in one place. This can be helpful so you don’t lose sight of anything, and it could also prove to be invaluable to your loved ones if anything were to happen to you.
The easiest way is just to use a spreadsheet to track your accounts and usernames. You can use a free app like LastPass to store and manage your passwords.
Step 10. Update Documents Periodically
Every now and then you may need to update some of your financial documents. It’s helpful to do an annual checkup, and the beginning of the year is as good a time as any.
Check your documents and account settings to make sure that all of your personal information is up-to-date and accurate. Check details like your address, phone number, email address, emergency contact, beneficiaries, and any other personal details.
A Few Quick Tips:
While the steps listed about will help to get your financial life in order, there are a few tips that I wanted to point out.
Make Use of Technology
In a few of the steps, I mentioned different apps or websites that can help you in various ways. Technology can be a huge help for managing your finances, so I recommend taking advantage of what is out there. A lot of great tools are free.
Limit the Number of Apps You Use
While I do think it’s a great idea to use technology, I also find that it’s best to limit the number of different apps, software, and websites that you use for this. There are all kinds of different options, and using too many of them can actually complicate things and make it harder to manage.
Find a few apps that help you in ways that matter the most to you, but don’t feel like you need to use every app out there, or like you need to use an app for everything.
Simplify Your Accounts
Once of the most effective ways to improve organization is to simplify. You can make your financial organization a little easier by consolidating and using fewer accounts. If you have multiple checking accounts, be sure that you really need more than one. Any unnecessary accounts will only add to your organizational burden.
Keeping your financial life in order will take a little bit of effort, but in the long run it will actually simplify things. Once you are organized you’ll spend less time on financial tasks, and you’ll get better use out of your money.
If you need to improve the organization in your own financial life be sure to work through the steps covered in this article and I’m confident that you’ll see results.
Marc is a personal finance blogger at VitalDollar.com, where he writes about saving money and making money. Marc has been a full-time blogger for 10 years and he’s passionate about helping readers to improve their own financial lives.