Organize Your Finances in 5 Easy Steps

Securing Financial Organization in a Chaotic World

We find that so often, people are the first to step up to the plate to provide insightful and “game-changing” financial advice. Whether it is from parents or coworkers, these insights are deeply embedded into an individual’s personal belief and their own personal approach to finances. This doesn’t mean that these words of wisdom are wrong, but it is important to remember that just like a personal career journey or relationship, every individual is different.

Before jumping into what to do with your finances, it is important to know where your finances are and why organization is the key to success. Take all the pieces of financial advice you know and let’s create an easy plan to secure financial organization.

Step 1: Create a Budget

In order to organize your finances, the first step is to create a budget. Adhering to a reasonable budget will not only provide opportunities to secure your personal finances, but it is also the foundation for the next steps which will bring you closer to managing your personal finances responsibly.

The best way to create a budget is to first understand your current monthly spend and find ways to organize and optimize how much you spend. Check out our article on Building a Better Budget for details on how to develop a reasonable budget.

Step 2: Checking Account Management

Once your budget is established, there are steps to ensure that you are managing your money in the most organized way.

Your liquid cash should be split into two accounts, checking and savings accounts. Your checking account should have a very specific purpose which is to house your income and pay your bills. Tie your checking account to your employer via direct deposit or have it serve as the home where all income goes via check or cash. Checking accounts should be used to pay all bills in a timely manner, assuming that there is enough income to pay monthly expenses because your budget has been created and adhered to. On a monthly basis, your checking account should see income go in and expenses go out.

At the end of each month, once bills are paid, residual money left in your checking account should be transferred to your savings account. Be sure to leave a “buffer” account balance of at least $150 to ensure that you do not receive any minimum account fees or overdraft fees from your bank.

Step 3: Saving Account Management

You did it! Budget is made, bills are paid. Now what?

Saving accounts are exactly what they say they are. For saving. That extra money in your checking should be transferred to your saving account on a monthly basis. There are many saving account options (see our article: Saving Accounts 101), but the key point is to ensure that once money is deposited into the saving account, it is rarely used apart from major purchases or in the event that your checking account income does not cover all monthly expenses.

Having your savings separate from your checking account is not just for logical purposes like increased interest rates or easy viewing, it is also a psychological tool. Having a separate account where the amount of withdrawals you can make is reduced, and where you would have to physically withdraw from the account to pay for something, makes individuals think twice before making that purchase or overspending their monthly budget. It is a helpful tool to build the right habits.

Step 4: Check Your Credit Score

Checking your credit score takes 5 seconds and provides deep insights into your personal finances. Your credit score will tell you how much of your credit limit was used for the month, providing insight into how well your budget is going. It also will tell you where there is room for opportunity to improve your score.

Credit scores are vital to securing lines of credit whether it is for a car, home or even a cell phone plan. It is important to be aware and actively manage, not only your liquid cash, but your digital financial footprint. Check out more on our Crash Course on Credit article

Step 5: Set — Up A Routine

Just like brushing your teeth every night (we hope you do!), financial organization is a routine and should be a healthy habit that eventually comes naturally. The best routine is to set up 3 key days, which we provided in an example below:

July 1st — Check your credit score, make adjustments to your budget

July 20th — Pay all bills from the previous month via checking account

July 31st — Transfer residual income to your saving account

Boom. Done!

While there are many aspects of the personal finance journey, it is important to first organize, and then execute.