“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…
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.
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.
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?
Thanks to Groovymarlin for the photo of the awesomely organized desk.