How to organize your finances in four easy steps

You’ve heard that to take control of you finances you sould track every penny you spend. You’d like to try this, but it sounds like such a pain. There’s so much paperwork involved. You lose receipts. You forget when bills are due. It’s hard enough making sure the bare necessities are tackled — who has time to track every penny?

I’ve been there. My financial life used to be a mess. Whenever a bill was due, I had to play a game of hide-and-seek to find it. I often overdrew my checking account because I’d lost track of how much money I had. Eventually I learned that it’s easier to track your finances if you keep them organized.

To stay on top of things, you need to have a system. You also need to reduce the amount of information coming in; you need to keep all of your information in one place; and you need to process your finances regularly.

Choose a System

In order to get things organized, you need to decide what sort of system you’re going to use to track your financial information. I use Quicken. There are many other computer programs that work just as well. Wesabe is an excellent free web-based solution.

You can also keep track of your spending with pencil and paper. People did this for hundreds of years before the advent of computers. My wife still tracks her finances this way. There is no one best choice — the system you choose should be one that you will use. You can find other ideas in the discussion about tracking your money.

Simplify, Simplify, Simplify

You’re barraged with bills and receipts and notices. All that paperwork can get overwhelming! It’s important to simplify our financial life by reducing the amount of paper you have to deal with. Here are some easy ways to simplify your finances:

  • Kill the credit card offers by using You don’t need the temptation to get another card. Besides, credit card apps are a huge identity theft risk.
  • Take it a step further — stem the tide of junk mail (you can never eliminate it) using the Direct Marketing Association’s own mail preference service.
  • Consolidate accounts where possible. Reduce the number of credit cards you carry. If you have bank accounts at multiple locations, combine them at a single bank. The fewer accounts you have to track, the easier it is to stay on top of them.
  • Similarly, cancel accounts you no longer use. Extra paperwork from unused accounts just creates clutter, and clutter makes it difficult to focus on the task at hand. (But read ispf’s comment below: closing certain accounts can give your credit score a temporary ding.)
  • GRS readers often praise automatic transactions. Does your employer allow direct deposit? Does your insurance company allow you to pay bills online? Can you set up automatic investments into your IRA? Automatic transactions make life simpler.

Keep Everything in One Place

It’s easier to take charge of your finances if you have a dedicated space for working with them. I have a small cubbyhole next to my computer where I tuck every bill or receipt that I bring home. One of my friends has a notebook into which he tucks all of his information. My sister-in-law scans her financial documents into her computer and stores them in a specific folder. Whichever method you choose, keep the area clean, use it only for finances, and be sure to put all your documents there.

I have separate locations for old receipts and for tax documents. Old receipts get filed in a shoebox (yes, really). When the shoebox is full, I move it to permanent storage and a new shoebox takes its place. It’s silly, I know, but it’s a system that works for me. I keep this year’s tax documents inside a manilla envelope tucked in my money cubbyhole. Past year’s tax documents get filed. Shred old financial information when it’s no longer needed.

Process Information Regularly

Setting up a system and designating a space for finances won’t do any good if you don’t manage your money on a regular basis. Performed daily, these tasks should only take about ten minutes. I can’t bring myself to do my finances every day; I do them weekly, and it takes me about 30-45 minutes.

Regular maintenance allows you to pay your bills on time. It also gives you a dedicated time to check your statements. (It’s important to check your statements so that you’re not blindsided by something unexpected.)

I find that if I go longer than two weeks before entering my information into Quicken, it’s a frustrating experience. I will invariably forget some important transaction. When you track every penny you spend, you accumulate a lot of data. If you don’t take care of your finances regularly, they’ll get out of control.

Now Go Save Some Money!

Tracking your finances is non-difficult, but it can be intimidating to begin. I encourage you to make the effort. It’s worth it. Organizing things is an excellent first step toward other financial goals: debt reduction, saving for a downpayment, investing for retirement. It’s most important to just start doing it, whichever method you choose.

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There are 17 comments to "How to organize your finances in four easy steps".

  1. ispf says 19 February 2007 at 10:56

    J.D., Great post!

    I would suggest one small change though. Where you say “cancel accounts you no longer use”, you should specifically say “bank” accounts, ie., something that conveys “cancel bank account, but NOT your credit card accounts”. My understanding is that closing credit card accounts will reduce the the average age of your credit history and can bring your credit score down but closing a bank account does not have the same effect (I personally wouldnt close any). There are several threads on fatwallet finance forums that discuss this and here are a couple of them –

    Also, I recently came across this article on a relatively new blog (which I found through your blog, btw 🙂 ) which says that 15% of your score is based on the length of your history!

    So, while cancelling unused bank accounts can reduce clutter, cancelling unused credit card accounts may have a negative side effect of impacting your credit score!

    • michwake says 10 March 2014 at 09:20

      I would say if you have too many credit cards though it isn’t a good thing to keep them all open. However, keeping the oldest ones open and negotiating better terms is in one’s best interest. Close the newer cards down if you have to close any down.

  2. Tom H. says 19 February 2007 at 11:17

    I was a little uneasy about submitting my social security number and date of birth to the site, so I did a little more research on them. I found some links from a few .gov sites, so I felt a little more comfortable. Then I noticed that the SSN and date of birth aren’t required, so I left them off.

    I don’t know whether that will make them less effective in screening my junk mail (the FAQ suggests that is the case), but I feel better not sharing my SSN/DOB with them. Call me paranoid.

  3. Adam says 19 February 2007 at 11:43

    My wife and I use Quicken to track our finances. We just got in the habit of entering our receipts as soon as we get home with them. Since I usually run Linux, we have the Quicken on her desktop that runs all the time, so it’s sort of like our financial kiosk.

  4. Princess_Manners says 19 February 2007 at 12:06

    Great post, JD. Just one thing– *requests* your SSN. While it’s not required, they say in red type something to the effect that giving it would be helpful. That rang my phishing alarm bell.

  5. J.D. says 19 February 2007 at 12:16

    I understand your concern. I was worried, too, back when I first discovered them. After further research, I came to the conclusion that the site was working *with* the government to make this happen. (There are links from the FTC site to OptOutPrescreen.) I cannot guarantee this is not phishing, but there is more to indicate that this is genuine than just about any other site I’ve seen. I gave them my info last year and haven’t experienced any problems.

    All the same, it is very very wise to be wary.

  6. Sketchee says 19 February 2007 at 12:52

    Suze Orman says to never close a credit card account as that will be credit you once had and now no longer had. I don’t know how “temporary” this effect is, however

  7. rob says 19 February 2007 at 14:49

    But don’t lenders take into account open credit when they are assessing you for a major loan (mortgage)?
    Aka – You are considered to have debt/payments as-if those credit cards were fully maxed out. Surely that balances the hit to the credit score.

  8. Greg says 20 February 2007 at 08:43

    I have been using Quicken for about 18 months and was amazed at how just having better visibility on my accounts has made me a better saver. Nothing makes me happier than to see Quicken’s net worth graph creep upwards.

  9. Russell Heimlich says 20 February 2007 at 09:42

    My system:
    I use Quicken also to track my finances but my bank, USAA, lets me download my financial information right into Quicken. To keep track of bills I use Google Calendar and mark down when the bill is due and when I paid it. This way I don’t pay the same bill twice. As for filing paperwork, I save my credit card and withdraw receipts in an envelope so at the end of the month I can staple the receipt to the correct statement which I file in a binder. This way I can easily find it later if I ever need it. Staying organized with my finances has helped me out greatly.

  10. Andy says 20 February 2007 at 10:11

    I was interested in signing up on the DMA website so that I could stop the junkmail that barrages me at my apartment, but they charge you $1 for that privilege. I know it’s only $1, but it’s the principle of the matter that bothers me. Seems a bit like extortion to me.

  11. Ellen Kay says 15 September 2008 at 09:22

    I have not used my credit cards in 3 years but have not cancelled them. When I get a replacement/updated card I just put it in storage and do not activate it……does this affect my FICO score?

  12. Wayne says 12 December 2008 at 10:50

    Here is one more idea:

    I choose to use my credit card for everything! Absolutely everything gets charged! And then…I pay it off every month. I can check my balance online if I forget how much is on it at any given time. I have three cards, two that I use, one I never use, I know my limits and stay within them…The best of all worlds.
    I agree that Google Calendar is a great (free!) way to track you bills, I use it too.
    What’s great about it is the credit card company tracks every expenditure(so no software and no data entry)…and paying it off every month means it’s like a free service (if you use a no fee card). Savings, and financial progress, comes from prolonged discipline…don’t be afraid of cards, just think of them as tools.

    If you know what you’re doing with a circular saw you can build a house…or you can cut your hand off …It’s not the tools fault either way!

  13. Henry says 10 December 2011 at 23:49

    I’ve used a product called Mvelopes for the last 3 years and it works GREAT. No need to keep receipts as it links to all your credit card accounts and let’s you automatically associates charge with the right budget category. Just drag and drop.

  14. Tom says 28 December 2012 at 18:55

    I find quite good also specifically to track debt. Its pretty simple.

  15. protein powder says 28 March 2013 at 21:36

    Could hardly agree more, great article

  16. Angeles says 13 December 2013 at 10:44

    Thanks for finally writing about > How to Organize Your Finances in Four Easy Steps < Liked it!

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