One of the biggest pitfalls people make when trying to get their finances in order is winging it; hoping that it will all work out. This is a recipe for financial disaster and missed financial goals. Even though, people may have the right intentions, without order and structure, they will default to what they have been doing.
If what you have been doing has not been getting you the results that you want, then it is time to do something different. It’s time to stop wishing, start organizing, and executing.
This article will highlight simple actions you can take right now to organize your money, achieve your financial goals, and make your money work for you.
This article will highlight:
Why You Should Organize
Signs That Your Money is Unorganized
Steps To Organize Your Money
Strategies To Stay On Track
Why You Should Organize Your Finances
Organizing your money is not a sexy topic, but it’s necessary. Most people want to just make more money, but that will only amplify the problem. More disorganized money will only lead to more chaos. If you are not able to manage what you have, more money will lead to the same result.
Organization puts you in a posture to respond to the unexpected instead of reacting. It creates a sense of calm in knowing that everything is and will be taken care of. When your finances are organized, you can dedicate your mental energy to purpose driven ideas and focus on creating impact rather than responding to financial chaos.
Also, if you are looking to build wealth, organizing your finances is a habit that you must adopt. In the article, 7 Simple Wealthy Habits To Establish This Year, I highlight the organization habit and several others.
Clear the clutter and the confusion. It’s time to get organized.
Signs That Your Money Is Unorganized
If you are unsure if your money is unorganized. This next section is for you.
Your money is a direct reflection of what you think and how you behave with money. It provides the unbiased results. So if you need to organize your money, all you have to do is review your financial behavior over the past few months and identify the patterns. Here are a few simple ways to tell if it’s time that for you to organize your finances.
- Frequent Late Fees – If you are being assessed late fees then it’s time to get organized. When your finances are disorganized, you can forget to pay bills, even a routine bill. Paying late fees is a waste of money. There are times when you can call the company and request to waive the late fee, but you don’t want to make that a habit. Because who has time for that? We are simplifying life this year, not adding more things to our to-do list.
- Robbing Peter to Pay Paul – When you consistently move money around to pay a bill, this indicates something is missing in the planning stages. Granted, there will be times when something unexpected happens, but that should be the exception, not the rule. Consistently exceeding your budget or having to make partial payments is a sign that it is time to organize your finances.
- Frequently Transferring Money From Savings to Cover Shortfalls – If your savings are decreasing even though you plan to save every month, it is time to get organized. You need to take a hard look at your expenses and assess how much you really can save. If you are trying to save too much at one time, you will eventually transfer that money out to cover the shortfall. Determine how much you can realistic save based on your income.
- No one Knows What To Do If Something were to happen to you – Bills are not paid unless you pay them. If something were to happen to you, no one understands what should be paid and by when.
Steps To Organize Your Finances
Step 1 – Identify your Financial Goals and Priorities
The first step to organizing your money is to have financial goals and priorities. Identify what you are organizing your money to do.
You will miss 100% of the targets you never set.
If you do not have a financial goal that you working towards, your money doesn’t have an intention. This means you will spend money based on the moment or how you feel. Marketers are skilled at influencing you to direct your money to their products. You must set the priority.
If you want to build wealth and have your money to work for you, then you must direct it to where it should be going based on your financial goals.
Start with defining what your short, mid, and long-term goals are. Take some time to think through each of the goals and write them down.
Next, calculate how much you will need to set aside every month to reach your goal. This should be incorporated in your spend plan in step 4.
Step 2 – Identify All Income Sources and Pay Periods
Once you have identified your goals, you want to understand how much income you will receive and from where. Write down all your potential income sources and when you will expect the funds. This includes all types of payments from your employer(s), side hustles, investments, child support, alimony, or any other income source.
For irregular income, take the average of the past three months to project what the income may be and an estimated on when you can expect payment. If your income is irregular, then you need to plan for a larger cash reserve to make payments until you receive your next payment.
Step 3 – Understand Your Expenses
Do you know how much it costs for you and your family to live every month? Knowing your monthly expense is important because it is the basis for many other financial decisions that are made.
For example, your monthly expense number helps answers:
How much do you need every month in retirement?
How much discretionary income do you have to save and invest?
In addition to planning for the future, understanding the monthly expenses is important in case someone else needed to pay the bills on your behalf. You want to have your expenses documented so that you and anyone in your household can easily manage the finances.
Make sure you write down all your expenses to include the vendor, the average payment amount, frequency of payments, and account information.
Step 4 – Align Your Money To Your Financial Goals And Expenses
Now that you have your financial goals and expenses identified, direct your money to these specific purposes in your spending plan. Allocate the designated amount based on when the payment is due.
Create sinking funds, categorized savings accounts, for each of your financial goals and have the money automatically transferred to that account. Sinking funds are an excellent way to save and track your financial goals over time.
Strategies to Stay Organized
Automate Payments
Automation can save you time and money. Instead of manually making payments, you can leverage technology to make the payments for you for the amount that you select.
Many banks offer automated bill payment as a free service to members. Many service providers also offer bill payment services, for cybersecurity reasons I caution you about linking your banking information to their site.
Set Reminders
Even if your payments are automated, you still want to set a reminder to make sure it was processed correctly (paid at the right time for the right amount). If you are not tech-savvy, you can still set up reminders on your phone or in your planner to alert you when a payment is due. Set the alarm a day or two before the deadline and plan on making the payment that day. Do not ignore the alert.
Minimize the Banking institutions
Having too many bank accounts can be costly (if the bank charges fees) and an administrative nightmare. Bank sprawl can happen when you have money in many accounts at different financial institutions. If you are not careful that can lead to excessive fees and maintenance charges.
It is a good idea to have at least 2 bank accounts to separate your checking from your savings account. While you can have a savings account at the same institution with your checking, it is best to create some separation between the accounts to make it more difficult to transfer funding from your savings account.
Create Sinking Funds
Sinking funds are savings accounts with a specific purpose. Instead of saving all of your money in one savings account, you want to create separate savings accounts for a designated purpose. This way you can clearly track your progress to meeting this goal.
For example, if you are interested in purchasing a new car and would like to make a $2000 down payment, you would create a sinking fund for this purpose and amount. When the time comes to use it then it is available
Minimize Payment Methods and Specify the Purpose.
The simplest way to simplify your payment methods is to use cash for your purchases. I know this may sound a bit old school, but one thing about the old school is that it worked. Once the cash was gone, that was it.
But since most of us use technology, then I recommend having one or two main cards that you use. Just because it is electronic, doesn’t mean you don’t need to track it. Continue to monitor your spending, especially if using a card.
You can also have your credit card company send you a text or email when you are getting close to your spending limit. The spending limit is not the card limit. It is the amount that you designate that you will spend per month. It should be well below the card utilization limit.
By minimizing the payment methods, you only need to focus on paying one bill at the end of the month, versus trying to make payments on various cards.
Related: One Tip To Reduce Your Spending and Build Wealth Faster
Conclusion
Organizing your finances will take some time and effort in the beginning but, more importantly, it will save you time and money in the long run. It is hard to put a price on financial confidence, clarity, and peace that having your finances in order can bring you, but it’s well worth it. That’s getting your Finances on Point.