5 Steps to Organizing Your Finances

Organizing Your Finances

If you are a beginner at keeping your personal financial organised welcome! This is definitely the post for you. Maybe you are just popping by to brush up on your organisation skills? Welcome back!

We all know how nice it feels when everything is in its place, tidily organised! Sadly, we also all know how easy it is too slip out of that routine. I find that the simpler my organisation routine the easier it is for me to stick to it! So this approach to keeping your personal finance in order focuses on 5 Simple Steps.

You can find my mission statement & disclosure here.

Set Financial Goals

Why you ask? Well you can’t move with purpose without goals. Goals help us to stay focused. They give us a bigger picture to look forward to. Now don’t stress if you can’t currently think of any financial goals you might have. Just ponder for a minute on your 5 year plan, and I’m sure you will bring a half a dozen to mind!

If you are thinking of starting a family in the next five years, then your goal might be to save for all the baby items and expenses that you might need. Perhaps you are considering purchasing a home? Your financial goal would then be to save up enough money for your deposit and the transfer costs of purchasing a home.

Basically your financial goals should support your dreams. What are you hoping to accomplish in the next five years? How will you fund it? The longer in advance that you can start preparing for a goal the easier it will be to save for.
If you need to save 60,000 in 5 years you would need to save 1,000 a month
If you only had 1 year to save 60,000 you would need to save 5,000 a month As you can see, it is so very important to plan ahead for your financial goals!

Track Your Spending

So onto step two, tracking your spending. It is important to track your spending so that you are aware of exactly where you are spending your money. Trust me, you could be seriously surprised at the amount of money you are spending on certain things.

The easiest way to track your spending is to, print out your statement for the previous month (3 months would be even better) and have a look at where you are spending your money. I like to color code mine, by categories, which helps me spot at a glance what I am looking for. For example:

Eating out – pink
Groceries – yellow
Impulse shopping – orange
Fixed expenses – green

Once you have finished categorizing your expenses you can calculate the total for each category. By now where you are over spending will be glaringly obvious (mine is usually lunches at work). Now that you have identified where you might be overspending, you can address it. Budgeting a set amount each month, will help you to control the expense. Which brings us to step three.

5 Steps to Organizing Your Finances


Once you have finished categorizing your expenses you can calculate the total for each category. By now where you are over spending will be glaringly obvious (mine is usually lunches at work). Now that you have identified where you might be overspending, you can address it. Budgeting a set amount each month, will help you to control the expense. Which brings us to step three.

Create a budget

A budget is a financial plan that you set for a specific period of time. For example a monthly budget or even a yearly budget. A budget is an estimate of how much each expense will total up to.

A budget helps you keep your expenses down, and also helps you to identify where you might be overspending. Having a budget will help you to minimize impulse buying. You will be able to see, with a glance at your budget where all your earnings have been allocated to expenses. Which means you can see at a glance exactly how much spending money you actually have! This usually curbs my desire to overspend. I just think of the goal I am aiming for and walk on by.

Learn how to create a comprehensive budget “Budget for Your Life.”

Determine Your Net Worth

Your net worth, is an important measurement of your current financial position. It details the amount you would have left if you sold all your assets in order to pay all your liabilities. Every financial goal you have should be pointed directly at improving your net worth. You can improve your net worth either by increasing your assets or decreasing your liabilities. Its important to know what your net worth is so that you can work on increasing it!

Calculating your net worth is a lot simpler than you might think. You will need to total up all your assets, (possessions that have monetary value ). Then you will need the total of all your liabilities, which would be your accounts and loans. The difference between your assets and your liabilities is your net worth!
Assets
Less: Liabilities
Equals: Net worth

Evaluate and Improve

After completing steps one to four you will have a decent idea of your financial situation. However, your personal finances are not set in stone. In fact you ideally want to improve your financial situation. Now that you have organised yourself and know where you are you can use your new knowledge to grow your net worth!

You can grow your net worth by increasing your assets or decreasing your liabilities. It is important to remember that if you have a lot of debt you should work on paying it off as soon as possible.

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