Being financially organized means keeping track of your finances. Being organized requires that you know where your money comes from and, more importantly, where your money goes. And, at some point, you have to stop doing it in your head. What if your perception is off? The best way is to get it in a written format or digital format, your preference. Start with a month at a time. Document all financial transactions that pass through your checking accounts and credit cards (that is, your main spending accounts).
Look at the details Document every single transactions for each account you own or owe. Transfer everything that goes through your financial institutions into one source so you can do the next step:
Look at the big picture Reviewing details is important but only to get you to this step: looking at the big picture. When you look at your spending as a whole (over some period of time, say a month or a year), your spending habits will be clear. You will see how you spend money…are you overspending, are you missing opportunities, are you right on track? Do you need to change your spending habits?
I tell clients – it is not that you can not buy what you want (unless they are being ridiculous considering their income), instead spread purchases out over time. Ideally, save first, buy later…not what most people want to hear but critical to keep debt under control.
How do you document transactions into one source?
First, you have to know what you own and owe (see examples below…get your paperwork organized). Then buy a product such as Quicken. For the beginner, Quicken starts as a digital checking register. As you get more sophisticated, you learn how to use the reporting features as a tool to manage your spending. The masters move on to budgeting. By the way, with Quicken or any financial software, make sure your data it is right by reconciling it to the financial institution you work with (this is critical).
Examples of what you own:
You probably have several checking accounts – these days, banking is so simple that every family member can have their own account
Hopefully you have some sort of savings – money market, 401k (through work), savings acct, etc
Do not forget your FSA, HSA, Dependent Care, etc offered through your employer- you own that cash, it is like a checking account
Examples of what you owe:
Credit cards – how many?
Loans – mortgage, student loans, etc…you can have a loan for just about anything