The same goes for your finances. If you can’t remember the last time you “spring cleaned” your finances then don’t wait another season to get them in order.
How to Organize Your Finances for a Fresh Start
Not sure where to begin when organizing your financial life? Follow these 13 steps to get your money and finances sorted out.
1. Take a Financial Inventory
The first thing to do when organizing your finances is to collect all your information in one place. Some things to consider in your financial inventory are:
- Credit reports
- Bank accounts
- Bank statements
- Credit and debit cards
- Retirement and HSA accounts
- Other investments
- Legal documents
For virtual records, create a folder on your desktop where you can easily find and store financial documents in. Make sure to include a copy of all the usernames and passwords for your financial accounts and tell your partner or someone close to you where to find it in case something should happen to you.
2. Declutter Your Accounts
Over the years, it’s easy for all sorts of accounts to accumulate. Maybe you have a 401(k) from an old job, an HSA that you can’t use with your current health care plan, or a bank account you no longer use.
When it comes to your finances, take a minimalist approach, only keep the accounts you use and have direct access to. Having accounts you don’t monitor can put you at risk of identity theft. So take time to close unused accounts and roll them over into ones you keep track of.
The only stipulation to this would be for unused credit card accounts. Canceling a credit card will change your debt-to-credit ratio and could lower your credit score. If you’re planning to apply for a mortgage or auto loan in the near future, see if your bank will allow you to lock the card instead. You’ll keep the account but no one will be able to use it. Otherwise, it may be worthwhile to close it.
3. Organize Your Paperwork
Even in our increasingly digital world, a lot of financial documents still come in paper. Go through all that paper and shred old documents you no longer need.
Most financial documents can be thrown away after three years including tax-returns, receipts, home-improvement records, medical bills, utility bills, credit card statements, bank statements, and investment real estate records.
Records of loans that have been paid off should be kept for seven years. For accounts that are active, keep everything and throw away individual documents as they’re updated.
4. Wipe Out Bad Spending Habits
We waste a lot of money every month on impulse and habitual spending. These expenses feel small in the moment but add up to thousands of dollars every year. Cutting out bad spending habits now can make a big impact on your future.
Go through your bank statements and calculate how much money you throw away every month on habitual and impulse purchases. Try to cut down on these purchases by 10% every month or experiment with giving them up altogether for a season.
5. Change Your Bank
Are you getting the best possible interest rate on your savings account? If you’re not sure, then it’s time to check out what other banks are offering. Many of the best online banks offer FDIC insured accounts with savings accounts that yield up to 1.85% interest while requiring no minimum balances or fees.
Even if you don’t want to leave your brick and mortar bank, it’s a good idea to have a few bank accounts. Separating your emergency and sinking funds from your spending accounts will help you avoid accidentally draining them.
6. Deep Clean Your Budget
Keeping track of your budget is the best way to stay on track with your financial goals. If budgeting hasn’t worked for you in the past, try budgeting after you organize your finances. A clear and updated picture of your finances could be the reality check you need to commit to a budget.
Remember it usually takes about three months of budgeting before you can make one that sticks. There are plenty of online budget tools that let you set up a simple budget and automatically keep track of your spending in different categories. Don’t get overwhelmed with every little detail of tracking your spending. Just focus on the areas you tend to overspend on.
7. Automate Savings
Once you’ve figured out your budget you might find you have more money to put toward savings. When you automate your savings you can use that extra money to build your emergency fund or save for vacations without thinking about it!
Decide how much you want to save and set up a direct transfer to your savings account. For an added bonus, sign up for a banking app like Chime that has an autosave feature. Chime rounds up each transaction to the nearest dollar and sends the money into a savings account.
8. Replenish Your Emergency Fund
When you’re getting your finances organized, making sure your emergency fund is fully funded and up to date is a crucial step. An emergency fund can be the difference between an event being a crisis or just an inconvenience.
Three to six months of essential expenses saved in a separate bank account is a good rule of thumb for an emergency fund. Recalculate when your monthly expenses change and consider your current job volatility to determine the exact amount that’s right for you.
9. Recalibrate Auto-Pay Dates
Did you know you can change when your bill payments are withdrawn from your account? You can even change the dates when your bills are due. Take inventory of the auto-pay and due dates for your bills and see if you need to change any to better align with your paydays.
10. Detox Your Debt
If you’ve got debt sitting around that you’re not actively trying to pay down, you’re wasting money paying interest that you could use to invest for retirement, or at least go out to dinner.
If you want to pay down your debt fast, try methods like the debt snowball or debt avalanche. Pay down your debt by going from smallest to largest loan (debt snowball) or highest to lowest interest rate (debt avalanche.) Either method will help you pay off your debt faster and motivate you to keep going.
11. Reassess Your Retirement Contributions
Saving for retirement isn’t something you set and forget. You have to check in occasionally to reassess your plans and make sure your investments are on track to get you there.
When it comes to saving for retirement, a good goal to shoot for saving is 10% to 15% of your income. If you’re starting later or saved less than 10% in your twenties then try to have three times your annual income saved by 40 or four times your annual salary by 50.
This is also a great time to reallocate the investments in your retirement accounts. Whether it’s fixing the percentages you have in certain funds or adding new funds, it’s important to stay on top of the performance of your portfolio. You can easily reallocate investments on your own or you can seek help from a financial advisor.
12. Track Your Net Worth
Your net worth is the value of all your assets minus your liabilities, also called debts. Your assets are your cash, investments, home equity, etc. Keeping track of your net worth is a great way to assess your financial health.
There’s no need to do it manually, online tools like Personal Capital make tracking your net worth simple and easy. Personal Capital also tracks your transactions, budget, and home value to keep you as up to date as possible.
You can visit Personal Capital to get more details and sign up for free.
13. Create or Update Your Estate Plan
According to a 2019 study from Better Place Forests, Americans are more likely to have watched a movie or TV show featuring Dwayne “The Rock” Johnson (53%) than make any end-of-life plans (41%).
Everyone needs an estate plan no matter how much or how little you own. There are several components to an estate plan. First is a will or trust. Most people assume they need a will but sometimes a trust is better, even if you don’t have many assets. Online services like Trust & Will can help you decide and establish yours at a reasonable cost.
Next, you’ll need to designate beneficiaries if you want to pass along assets to people outside of your will. You’ll need at least one power of attorney to act on your behalf if you’re unable to, a living will, and a letter of intent.
Taking Charge of Your Finances Starts With Being Organized
Getting your finances organized doesn’t take that much time yet so many people put it off until it’s too late. Don’t wait to get things under control so you can rest easy knowing you’re set for the future.