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Organizing Your Finances

Organizing your finances is more than having a budget. It’s having financial goals, a plan, and understanding where the money you earn goes every month. You need to organize your finances if you’re ready to get out of the cycle of living paycheck to paycheck and maxing out your credit cards. These steps will help you get started.

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Set Goals

There’s never a bad time to set your financial goals. There are many online tools that can help you with this. As you think about your financial goals, consider short-, medium-, and long-term goals you’d like to accomplish. 

A short-term goal is something you’d like to achieve in the next five years, such as paying off a car or credit card debt.

Medium-term goals are those you’d like to accomplish in the next five to ten years. Such as buying a house or starting a business. 

Long-term goals are more than ten years away and could include things like going to college or retirement.

For each goal, include a dollar amount you think you’ll need and a target date.

Create a Budget

A budget is how you’ll reach those goals you just set and is based on your existing income and expenses. It should be adjusted frequently, even as often as each pay period, if your income or expenses vary. There are different ways to do this.

Zero-Based Budget

This is a great option if you’re prone to overspending and splurging. With this method, you allocate every dollar of your paycheck to a specific category until there’s nothing left. Be sure to allocate some to build your emergency fund.

70-20-10 Budget

As the name suggests, with this method, you split your take-home pay into three categories. Seventy (70%) percent goes to monthly bills and expenses, 20% to savings, and 10% to charity or paying down debt.

There are other methods as well, such as the 50/20/30 budgeting method, so find one that works for you and your lifestyle.

Track Spending

Now that you have a budget to help you reach your financial goals, you need to track your spending. You can do this in Excel using one of their free templates. There are also many free and paid apps that can make this easier. Some link to your bank account and import transactions, making the whole process easier.

If your bank offers this, you may also want to turn on alerts letting you know each time money is spent from your account. This can help keep you accountable, particularly if you’re prone to splurging, or alert you to fraud within your accounts. Below are a few your bank may offer:

  • Low balance alert
  • Large purchase alert
  • Large withdrawal alert
  • Direct deposit alert

Know Your Due Dates

An important part of organizing your finances is knowing your due dates. If you make late payments, you’re likely going to incur a late fee, which doesn’t help with staying on track for your goals. Plus, 35% of your credit score is based on your payment history. Paying on time matters.

You can use calendar reminders or a budgeting app to keep track of due dates, and payment amounts to ensure you’re never late again. Most creditors provide online bill payment reminders which can be customized to your schedule. If you find you are still late on certain payments, check with your servicer about changing your payment due date.

Automate Your Payments

Organizing your finances

Most service providers and banks have the option to set up autopay. Depending on the dollar amount and how it fits into your overall budget, this can be a great way to ensure you’re always paying on time. For larger payments, like rent, you might need a little more control to avoid overdraft fees. Be sure to set up those reminders, so you pay it on time based on your lease and don’t incur penalties. As a bonus, some companies offer discounts for setting up autopay on your account- It never hurts to ask if there’s a discount.

Separate Your Money

Another great way to organize your finances is to separate your money. Have the money you use for bills separate from savings and separate from donations or other funds. There are different ways to do this, so pick the one that makes the most sense for you.

Cash Envelopes

Since you’ve set your budget, you should have a pretty good idea of how much cash you have left each month after your bills are paid. That cash amount goes in cash, into an envelope system for you to spend on variable and discretionary expenses such as groceries or dining out. It’s a great way to cut down on splurging and stick to your financial plan. This plan isn’t for everyone, but if it helps you save and manage your money, we call that a win.

Different Bank Accounts

Another way to keep your funds separate and still accessible is to use different bank accounts. Have one for bills, one for savings, and one for other spending – or any others you’d like. You can set up as many accounts as you think you need. 

If your take-home pay is the same each pay period, you can automate moving funds, so it’s always exactly where you need it to be. This helps ensure you don’t overspend or incur overdraft fees.

Insurance and Estate Planning

As you’re organizing your finances, don’t forget about insurance and estate planning. They are key components of any financial plan. 

While insurance is essential, you don’t want to pay for coverage you don’t need. Depending on your age, lifestyle, and coverage given by your employer, you will want to consider health insurance, disability insurance, and life insurance. Auto and home/renters insurance may be required by law, depending on where you live.

No matter your age, it’s never a bad time to start estate planning. Be sure to keep your will and other beneficiaries noted in retirement and insurance plans up-to-date. Estate planning can be complicated, so speak with a financial planner or estate attorney to help you get started. 

Organizing your finances now helps ensure long-term financial success. So which of these steps will you do today?

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