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Organize and Thrive: How Small Changes Now Can Better Your Finances Forever

An organized life, workspace, and financial plan can help you save more and get out of debt faster.“Organizing is what you do before you do something, so that when you do it, it is not all mixed up.” – A. A. Milne

Do you WANT to change your financial situation but wonder why you NEVER make progress?

Are you always reading about how improve your finances but don’t even know where to begin?

Do you even realize that your fast food breakfast sandwich habit is costing you an extra $650 a year?

Part of the problem is we always read, read, read and dream, dream, dream, but rarely DO anything. And yet just a little bit of DOING is worth a whole lot of dreaming.

If you really want to whip your finances into shape, there’s no time like RIGHT NOW. And one step that you can take right now is to get organized. If your finances are organized, you can more easily:

  • Keep track of your goals.
  • Reach your goals faster.
  • Remove confusion and stress from managing your finances.
  • Spend less time managing your finances.

Become more familiar and more understanding of your spending habits.

When my life is organized, everything runs much more smoothly. When I make a list, I don’t forget as many things at the grocery store. When I file documents in the correct folder, I can find them quickly when I’m working on a particular project. If my things are packed and ready to go the night before, I always make it to work early.

But do you know the best part about organizing your finances? It doesn’t take much time to see success, which is a nice change of pace if you’re in the middle of a long and tedious journey of paying off debt or saving for a home.

HOW ORGANIZED ARE YOU?

Note from David: Amber’s post inspired me to write up the following little quiz that provides a fun and hopefully eye-opening (if not scientific) way to measure your level of financial organization. Give it a shot before diving into Amber’s tips so you know where you stand…

How organized are your finances? Take this quiz and find out?

Now that you have a sense for how financially organized you already are, here are some basic steps to get your finances in order so you can achieve your goals for the year with ease:

PICK A SYSTEM THAT WORKS FOR YOU

There are countless systems out there that will help you organize your finances. I’ve tried several of them, but I ended up sticking with just one. For some reason, that one works best for me. But it might not be the one that works best for you.

Here’s a list of some popular personal finance applications available today.

If you’re new to the personal finance game, don’t be afraid of simple spreadsheets. You can use spreadsheets to create budgets, track account balances, or enter each and every penny that you spend. If you’re a spreadsheet newbie, Google Docs has some great templates to get you started.

But if you don’t want to track every penny, you don’t have to! Some people swear by documenting every expense, but it doesn’t work for others. Just because you don’t want to write down every visit to the gas station or the grocery store, does NOT mean your finances are doomed. It just means that your budget needs to be a bit more general and less detailed. I used to track every expense; however, once I became familiar with my spending, I dialed down my meticulous budgeting habits and now a less detailed approach works best for me.

Don’t try to force a system on yourself that just won’t work for you. Doing so may become exhausting and cause you to give up before you can make any progress. Experiment until you find one that works best for you and your finances should start to come together naturally.

DO IT NOW

As with everything else, the more I put off organizing my financial files or updating my budget, the more I dread it. If you stay on top of your finances on a regular basis, the task will become less daunting, but it might even become somewhat enjoyable. Here are some tips that might help you procrastinate less on your finances:

  • Start small. Start by organizing one account, one income stream, one credit card.
  • Do one thing every day. Jot down your daily spending, make a payment, shred a statement.
  • Set a reward. When you’re done organizing files, you can relax on the couch – without guilt.
  • Notice the progress. If you spend time with your finances every day, take time to notice the small progress you’re making each and every day.

GET COZY WITH YOUR SHREDDER

Simplicity is underrated. When you’re buried in unorganized papers, it’s hard to dig yourself out – especially when most of those papers are completely unnecessary.

When you begin your organization journey, don’t be afraid to shred, shred, shred. Not only does it destroy important financial information, but now that many companies are going virtual, they probably have a copy of anything that you really need.

Here are several documents that are probably lying around that you can destroy without worry:

  • Monthly bank statements.
  • Credit card offers.
  • Documents seven years old or more.
  • Receipts not related to business and/or tax returns.
  • Utility bills not related to business and/or tax returns.

Check out this handy chart for more information on which records to keep and for how long.

CONSIDER GOING VIRTUAL

Over the years, I’ve converted to a completely soft copy/digital personal finance system. I no longer receive any paper statements in the mail and I pay all my bills online. Switching to an all virtual system takes away any risks of someone sorting through my trash and stealing my bank account number.

Another option is to invest in a scanner. Scanners are becoming more and more popular and are even built into many printers. With a scanning, your options for your financial files are endless. You can maintain records of receipts, account statements, investment records, tax forms, paystubs, utility bills, or any other documentation related to your finances. Don’t forget to password protect sensitive documents and backup your data.

Taking the virtual option even further is saving your financial documents online. Google Docs – a place where you can maintain any sort of document regardless of whether you have a Google account – has become increasingly popular over the years.

ORGANIZING TAX RECORDS

Worried about tax records? Obviously, banks and financial institutions won’t have copies of your personal receipts or freelance income, so it’s important to keep hard copies of those (unless you have access to a scanner). Here are some general rules for how long you should maintain your tax records:

  • Yearly bank statements: Three years for employees and six years for self-employed individuals.
  • Stock/Investment Purchases/Sales: The length of time you own the stock.
  • Tax returns: At least six years, if not longer.

The Internal Revenue Service provides more complicated rules for how long you should maintain tax records. If you’re just unsure, it’s better to be safe than sorry, so just keep a copy. Luckily, many companies and financial institutions are starting to maintain electronic copies of W-2s and/or 1099s if you need them in future years.

MAKE SOME ROOM

It’s hard for your finances to grow and develop into their full potential when they’re buried under a bunch of stuff and/or pushed aside into a corner in your humble abode.

It’s important to make a space to work on your finances, not only for organization purpose, but also because they’re a big part of anyone’s life and need space just like anything else in your life would. Here are some tips to make some room for your finances:

Start with a folder. Making room doesn’t equal an actual room. It could be as simple as a folder, a drawer, a shelf, or a filing cabinet.

A functional space. The ideal space for your financial documents is probably not your bathroom. Look for a space where you can sit and work without distractions.

Clean it up. What’s the point of having organized finances if the space where they live looks like it just got a visit from a tornado?

SEEING IS BELIEVING

If you made financial resolutions for the year, post those near your personal finance area. Whenever you’re working with your finances, you’ll see a reminder or your ambitions for the year. When I make goals for myself, having a visual reminder of my dreams really helps give me the boost I need when I feel like I’m getting nowhere.

As you reach each goal, make a huge mark through that goal so you can be encouraged by your progress no matter how big or small.

GO GET ‘EM!

Now you’re ready to go! You have a clean slate that’s the perfect jump-off point for reaching all your financial dreams.

What are your best tips for organizing your finances?

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Thanks to Groovymarlin for the photo of the awesomely organized desk.

About Amber Gilstrap

Amber is a twenty-something CPA from Kansas City, Missouri who loves writing, working out, and---of course---finding fresh ideas for saving money. Follow her on twitter @ambergilstrap.

Comments

  1. David Weliver says:

    Thanks, Amber, for an awesome article. This is one of my consistently favorite topics because everybody structures their finances so differently and yet different things work for different people.

    I definitely learned some things—like because I have self-employment income I should be saving stuff for six years instead of three, eek! And it’s a good reminder to revisit my own financial organization. I scored a 7 on my own quiz but there’s still room for improvement!

  2. Organization is my sanity! If my life is not organized, I get very little accomplished each day. Your finances will never get organized if your life is never organized. It is important to find a balance for life, and organize based on that structure. Thanks for the great post amber.

  3. I am “Seriously organized,” but my spreadsheet of daily account balances (of 10-14 accounts over 2+ years, trend lines and all) scares even ME!

    • David Weliver says:

      DAILY account balances for two years!!? Yup, a little scary ;) I sometimes forget to update the monthly spreadsheet I keep, I can’t imagine doing it daily…although it must be pretty cool to have all that data.

    • Wow! That is just mind-boggling. I thought I was doing well keeping a spreadsheet of my monthly balances and net worth.

  4. I think this article is dead on. For the longest time all I would do is read about personal finance, read about productivity, make a list of goals, etc. I didn’t even realize what I was doing until one day my day asked me if I needed a “book on how to read self-help books” for Christmas. I got the dig after a few seconds and got a little defensive. “Look,” he told me. (and now I’m paraphrasing) “I learned most of the things I know by actually doing them. Not by reading about them. Sometimes you just have to do something, even if your not 100% ready or if it ends up not being 100% perfect.”

    I have yet to start my own business, (which is a major dream of mine), but I have tried to actually take calculated risks and to implement things (such as starting my blog even) that I think will help me develop and achieve my goals. So, in short, I definitely agree with the spirit of this post.

  5. I think the most important point to take from this article is to pick the system that works for YOU. I’ve experimented a lot over the years and feel like I finally have a great system down. Even if it’s “organized chaos”, it might work for you. My fiance is like some commenters, in that, he loves to track every penny. He still plans to do this after we’re married, but I still plan to have my own system that isn’t quite so meticulous. What works for one person just does not work for another. Choose what works best for you!

  6. I am another one of the ‘seriously organized’ people. For the past year and a half I have been using an Excel spreadsheet to track my every expense and piece of income. I organize expenses by food, alcohol, household, transportation, hygiene, medical, miscellaneous, clothing, work, and banking. So the columns are the categories and the rows are the date of the expenses. I also track income gross, net, hours worked, cash flow, and 401k contributions. I break everything down into percentages of my net income as well. Each month is its own page and there is one page that is just the totals from all the individual months. I also track the monthly average, median, and standard deviation in each category. I’m not sure how useful these last statistics are but I find it fun to do. I like that within Excel I reference other cells. So if I add an expense to January then the ‘totals’ page updates automatically.

    I’d also like to track my savings/investments in a similar manner but I’m not totally sure how to do it well. At the end of 2010 I calculated my net worth for the first time and I know I will be doing that at the end of every year from now on.

    I like my system and welcome any suggestions on how to make it better.

    • Wisconsin Amber says:

      That is awesome! I do a lot of the same spreadsheets. But you do drill down and out a bit more. You have given me some good ideas. Seeing others’ ideas an spreadsheets is so very interesting to me, as I am part accounting nerd. :)

  7. I give myself a 7 on the quiz, but that is giving two 1/2 points.

    I gave myself a 1/2 point of keeping a record of every dollar I spend, because I track most of it, but I do not keep a record of cash transactions (I use mostly my rewards card).

    I also gave myself a 1/2 point on the five-year plan, as that is mostly in my head and not set in stone.

    I also do not have a set budget or multiple designated savings accounts (just one).

  8. I use 3 spreadsheets, Quicken, and Mint. The key to my success is using Google Docs (I used to use Windows Live Workspace…now SkyDrive) to maintain the spreadsheets so that I can access them at work or at home. Once I have a smart phone, I’ll be able to update them as I make purchases.

    Spreadsheet 1: Monthly Budget
    I put in the incomes (my paycheck, my wife’s paycheck). Then I have the expenses. I start with the most important and consistent…mortgage, car loan, cable/internet, etc. The I have a section for broad categories like groceries, dining out, entertainment, etc. Then I play with the numbers until it’s balanced (or close to it). I consider any difference a “piggy bank”. Some months, depending on utility bills, tax rounding on paychecks, etc that piggy bank will be different but the rest of the numbers can roughly stay the same.

    Spreadsheet 2: Spending Diary
    This is the electronic version of the envelope system. You take the “Broad Categories” and make a “deposit” into each category each month. As you spend money throughout the month you take out of that balance. The sheets of this spreadsheet look like the check register in your checkbook and each sheet is a different category.

    Spreadsheet 3: Monthly Expenses
    This spreadsheet shows me everything I’ve spent for the month, so it keeps a lot of the same data as the second spreadsheet, but I have it set to calculate percentages of spending for each category and some other info.

    Quicken: I mainly use this to look at the big Net Worth picture because it will track my loans, mortgage balances, investments, etc.

    Mint: Similar to Quicken, but some of my loans don’t come through.

  9. Nice post! It seems getting organized isn’t has hard as staying organized.

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