Organizing Your Finances
I spend a lot of time in people’s homes, helping them to work through their physical clutter and organize their space, time, and priorities. One area though that I notice getting frequently ignored is people’s finances. The two are so closely linked. Often the people who don’t think they have enough money, overcompensate by buying things that they don’t really need or want. Even the people that think they do have enough, often struggle to get the help that they need to go through the stuff they have because they feel they should be able to do it on their own.
Fortunately, organizing your finances and organizing your home are built on the same foundational principles. You are totally capable of getting both organized and creating peace in your home, your bank accounts, and the rest of your life. And if you need any help along the way, there are so many resources and people who can help.
The first step in organizing your finances is the same as in any other organizing project, you want to start by determining what your goals are. These will likely look different for each person since everyone is in a unique position in their life. You can start by determining if your primary focus should be on paying down debt (student loans or consumer debt), on saving, or something else entirely.
If you are going to focus on paying down debt, think about how much you want to pay each month, how the time horizons could shift if you paid a bit more, or what it might look like to consolidate your debt. It is worth taking some time to get expert advice on the best way to tackle your debt. If you don’t want to do that though, then spending at least a couple minutes coming up with a strategy can save you a lot of time, effort, and money in the long run.
If you are going to focus on saving, you can then determine what you want to save for. Likely you will want to set aside money for long-term goals like retirement. Even if you think you will work until you die, or want to work until you die, the older you get, the more likely it is that you will face unexpected health or other challenges, and you should be prepared to deal with them. And even if you’re sure that will never happen to you, setting aside some money for your future self to take some long vacations, might be something you want to start preparing for now.
In the second step towards organizing your finances, you need to sort what you have now and what you will have in the future. This is very similar to what you would do in organizing any space in your home. You’ll need to determine if the money you have now has a specific “home” (bank or investment account) or if is it just floating around without a purpose.
Now is the time to also go through your budget, if you have one, and asses where all the inflowing money ends up. If you don’t have a “budget”, just look back at the last couple of months of expenditures and see where your money has been going. From there, you can determine if you are happy with that allocation or if you need to make some changes.
I don’t necessarily think that you have to, or in some cases even need to, have a budget. I technically don’t. I know how much money I am comfortable spending in different categories over the course of the month, but I don’t force myself to strictly stick to it. Sometimes that means I take money from my fast food budget because I need to get some new socks. And it also allows me to have the freedom to get coffee with a friend even if that would push me a little bit over my goal “coffee shop” spending amount that I have set for myself.
Once you have gone through your finances and sorted it into categories, it is time to just double-check that you aren’t holding on to anything that actually doesn’t serve you. When decluttering a closet or a kitchen, we’re likely to come across more things to get rid of, and since they are physical items, it can seem like they are more important. But “decluttering” your finances is just as crucial! Take some time at this point to go through and make sure that the goals you set at the beginning and the spending/saving/paying down debt plan that you established are in alignment with each other.
The next step is to actually organize and put your money where it belongs. For me, this looks like creating separate places for my money to go that supports the different goals I have. For example, I have my checking account and a savings account at a national chain which allows me to access my “active” money safely and from pretty much anywhere. And I already have the built-in buffer of that savings account to make sure that I am safe in case anything suddenly comes up.
I also have investment and retirement accounts that I keep separately. I have specific financial goals for these on a monthly and yearly basis, so I use direct deposit to make sure that part of my income ends up in these places.
But since life isn’t all short term emergencies and long term goals, I also have separate savings accounts to help reach my shorter-to-mid term goals. I keep these accounts with Ally, an online bank. Since I don’t have all of my money together at one bank, this keeps my money a bit further out of reach (I’m not going to dive into it for some new shoes) but since it is an online bank, I also get a much higher interest rate than I would get at any other local or even national chain. Ally also allows me to have numerous different accounts, all with no minimums. And just so you know, I’m not associated with Ally in any way beyond the fact that I use and love them!
With Ally, I have separate savings accounts for travel, gifts, my future house, my future wedding, and several other things. I even have two different emergency accounts! One for true emergencies and one that I like to refer to as my “oh sh!t” account, for those lower cost, but still annoying accidents, mistakes, or surprises.
A newer feature that I heard Ally launched, but that I haven’t used, is the ability to keep multiple “buckets” within their savings accounts. That way you could still have a label on each dollar, without having to have multiple accounts. So that’s another option. Just make sure that all of your money, especially the money that you are saving, has a “home.” That doesn’t mean you can’t decide later that you don’t actually want that money there, or that your priorities can’t change, but it allows you to have consistency and organization now to meet your current goals.
Of course, the last step, as it is with organizing anything else, is maintenance. Whatever money system you set up, you have to be willing to maintain it in the long run - or else there is no real point! Make sure that however you decide to organize your finances, it is a system that works for you and that is easily maintainable. Thankfully automatic withdrawals and automatic bill pay can make maintenance so easy! Now if only I could get my clothes to hang themselves back up in the closet…
There is no right or wrong way to organize your finances. You could use Ally, or another online bank, or stick to your local credit union. You could have ten savings accounts, five, or two. I would challenge you though, to take some time to assess where you are and the state of your finances. Just like everyone’s closet could use a little love, chances are, so could your money. Unfortunately, like your closet, you could just shut the metaphorical door and refuse to look, but it is so much better to let the light in, and go from there.
We’ve all made mistakes - whether it’s all those clothes with the tags still on them, or forgetting about that one credit card for a bit too long. But those decisions are in the past, they only continue to affect our present if we let them. And by no means should we let them hold us back from reaching the future that we want.
You have so many great things ahead, and taking the time to organize your finances can get you even more in alignment with that wealthy (and organized) version of yourself.
Until next time,