The weather has settled into a true winter pattern and many of us don’t really want to be outside in the cold. Ergo, it’s the perfect time to nestle in and tackle a task we may tend to avoid – organizing our finances. For many, the annual New Year’s Resolution list consistently includes better financial management. Perhaps this means spending less and saving more, having a better handle on overall finances or being diligent about funding your retirement nest egg.
Regardless of your objectives, taking time now to get your financial house in order will help you be better organized for this year, and also give you a head start on pulling your tax records together for April.
Here are five simple steps you may find helpful to getting organized:
Create a filing system that works for you. There are multiple resources online and even at office supply stores for helping you get organized. The key is finding one that works for you. I use a combination of “old and new school.” For setting up and maintaining a budget, programs like mint.com are great. But sometimes the manual way is easier. For example, when I have expense receipts, I generally put them in an envelope and manually enter them on a simple spreadsheet. I then reconcile or total expenses every quarter so that I don’t have an entire year’s worth of expenses to log and total when tax time comes. There’s no right or wrong system, use whatever works for you.
Assess your overall financial situation. It is a good exercise to take a clear look at your financial picture. What are your debt levels for things like cars, mortgage, private school, college savings, etc.? How much do you bring home in each paycheck (after your 401(k) or other pre-tax contributions)? As you reconcile your income and outgoing cash, you want to determine if you are on track with your short-term goals or if you need to make any adjustments.
Clarify your goals. Short- and long-term goals should be revisited on a regular basis and adjusted if necessary. It’s a good exercise to clarify your goals with your spouse or significant other to ensure you’re still on the same page in terms of where your money is going. Think of short-term goals as those you’d like to achieve this year, then for longer-term, look out two- to-three years and consider where you want to be financially. Revisiting and revising your goals together helps make you each accountable and more apt to stick to a plan in achieving your shared financial objectives. Once you’ve clarified or adjusted your goals, have a conversation about what you need to do to achieve them.
Understand the gap between your goals and your financial picture today. Armed with a realistic view of your current financial situation on one hand and your goals on the other, determine any changes you need to make. Closing the gap between where you are and what you need to achieve your goals may be a simple conversation and decision to cut back spending on your own. Alternately, the gap may be significant. If you find yourself in a situation where your goals appear unachievable, it may be time to consider a professional financial planner. A professional financial planner can build a plan with various scenarios and help you identify solutions and paths to successfully achieve your goals.
Do an annual spend for 2015. With your financial picture defined, your goals clarified and a clear view of any gaps, it’s now much easier to put parameters around what your spending should be for this year. I would caution you resist the temptation to put together your budget before understanding your overall picture. You’re far more likely to be successful when you have all the facts and details at your fingertips.
Organizing your finances is an exercise that takes an investment of time. That said, the payoff is well worth it, enabling you to illuminate your financial picture, make realistic spending plans and ultimately achieve your goals. If you are stalled or feel too busy, or you and your spouse cannot agree on goals and/or your gap is large, hiring an unbiased professional financial planner may help you make progress.