Similar to cleaning out a long-neglected garage, basement, or storage unit, organizing your finances can seem like an unbelievably daunting task. Whether not knowing where to begin, not feeling they can effectively manage money, or merely feeling discouraged at the perceived difficulty of the task, many individuals put off organizing their finances.
In fact, according to the Consumer Financial Protection Bureau, 70% of Americans have no established budget, and 40% prefer not to think about money management at all. The Consumer Financial Protection Bureau also posits posts several reasons that prevent Americans from getting organized and properly managing their money. These reasons include:
Consider how you feel about creating a budget, thinking about money management, and organized finances. If any of these ring true for you, then it is likely due time that you took steps to get organized and take control of your finances.
The following are simple steps you can take to organize your finances and finally free yourself from the burden of an out of control wallet.
In a Forbes article, financial advisors were asked their advice on how to save money. The number one step, they say, is to track expenses. Without a budget, it is impossible to accurately track your expenses accurately. Use a spreadsheet to establish categories for monthly spending and saving based on your total monthly income. Do not worry too much about getting it right the first time; use your first monthly budget as an experiment and a tool to better refine and improve your spending categories for the next month. By tracking expenses, you can ensure that any added expenses or impulse buys will not break the bank, resulting in a negative net income (spending more money than you earn) for the month.
A time-tested savings rule is to pay yourself first, yes first. The principle is that if you automatically save a set amount each month, eventually you will not even miss it or include it as money that could potentially be used for other budgeted expenses. By setting up automatic transfers or asking your work's payroll department to split your direct deposit between a savings and a checking account, you will never even have to worry about forgetting to transfer to your savings account or deciding to spend the amount you want to save.
Putting money into any of these things is essentially throwing it away. Yes, sometimes it might be necessary to use a credit card with a high-interest rate, but you should take every measure you can to pay the balance off as quickly as possible. Also, never incur late fees or overdraft charges due to carelessness. Keep track of your monthly bills' due dates and make sure you pay them on time. If you have trouble remembering, consider setting up automatic payments using electronic bill payment.
In addition to budgeting, organizing finances also requires good record-keeping, which is necessary for future tax and legal purposes. Create folders stored in a single location (a filing cabinet if you own one) to separate, organize, and store important financial records. These documents might be related to medical expenses, insurance, taxes, loans, your home, business expenses, credit cards, brokerage accounts, and bank accounts. To ensure filing never becomes overwhelming after establishing a good system, commit to filing mail, receipts, invoices, statements, and other important documents weekly or bi-weekly depending on the amount of mail you receive. You can also streamline your filing system by storing some or all of your documents electronically. Sign up to receive paperless statements and bills, which can be accessed electronically. You can also invest in a scanning system to scan an electronic image of your important documents to store on a secure external hard drive or with a secure and trusted cloud-based data storage company.
Trying to tackle the entire challenge of organizing your finances in one fell swoop is a mistake. If you take on too much all at once, you will likely feel overwhelmed – especially if start from scratch. Schedule time to dedicate to individual tasks that lead to achieving larger goals such as saving receipts for a month to create your budget's spending categories or sorting through a pile of un-filed documents for storage.
Committing to organizing your finances so a professional organizer would be proud will help you get your spending on track and also achieve your savings goals. If you create a budget, and a filing system, and stick to them, your future self will thank you.
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This content is provided for general informational purposes only and does not constitute financial, investment, tax, legal, or accounting advice. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this information should consult with a financial professional. The information contained in these articles was obtained from sources believed to be reliable and accurate at the time of publishing. We do not represent that it is accurate or complete, and it should not be relied upon as such. All opinions and estimates expressed in this article are as of publication date unless otherwise indicated, and are subject to change.