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.

More about...Planning

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