Organizing finances is important to your financial health. If you aren’t organizing them, chances are that you are nowhere near a prepared for a financial emergency as you would like, if you’re prepared at all. The task of organizing finances can be daunting for many people, especially if you have never even made a budget before. Sometimes the fear of seeing where you sit financially keeps you from tackling it. Other times you simply are too busy to find the time. No matter what you reason is, taking the time and initiative to organize your finances will get you on the path to financial fitness and a huge stressor in your life.
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Know Your Net
Before you do anything else you need to know what you net (bring home) each month. This is what you will actually have to spend after taxes, health insurance, and any savings such as a pre-tax retirement fund or health savings account. There is a section to do this on the editable Monthly Budget I created that will do the math for you by simply plugging in your numbers. However, here is the math if you would like to figure it up for yourself on paper:
- Hourly Wage X 40 = Gross
- Gross – (Insurance + 401K + HSA) = Taxable Income
- Taxable Income X .23 = Taxes
- Taxable Income – Taxes = Weekly Net
- Weekly Net X 4 = Monthly Net
Know Your Expenses
Once you know your monthly net, it is time to figure out your monthly expenses. All of your expenses will be categorized into 3 groups:
- Essential – These are the expenses that you absolutely have to have. These include expenses such as you rent/mortgage and your car insurance. Essential expenses are the most important ones and need to be you priority each and every month, no exception.
- Non-Essential – These are the expenses that are nice to have or that make your life easier but that are not necessary for you to take care of yourself and your family. Cable television and eating out would fall into this category. This is the first category to make cuts from if you are spending more than you make.
- Debt – This is a category you want to try to eliminate altogether. Any student loans or personal loans as well as any credit cards you own will fall into this category.
You want to list out what all of your monthly expenses are along with what the monthly payments on them are. Again, there is a place for this on the Monthly Budget spreadsheet that will total your categories for you as well as give you some basic ideas of what falls under each category.
If you have never made an actual budget before, the numbers may surprise you. You may find that your monthly income is greater than you expected. In contrast, you may be shocked as how much money is going out each month. If you are still finding yourself broke each month, no matter which of these scenarios you fall into, there are steps you can take to get your budget and spending on track.
Income is Greater
- If your income is greater than your expenses but you are still running out of money each month then you need to find the leaks. The best way to do this is to track your spending. A wallet register is great for this. It’s small enough to fit in a debit card sleeve so you can carry it in your wallet. It is so convenient that even if you use cash, write down every purchase for a week or two. Then take a hard look at where all of your money is going. Are you eating lunch out every day? Do you get a Diet Coke from the vending machine in the breakroom before work? Once you are aware of the leaks, start trying to plug them by tempering your spending. You can start small by packing your lunch once a week or by purchasing a 6 pack of Diet Coke from the store to take into work each day instead of buying from the vending machine.
Expenses are Greater
- If you monthly expenses are greater than your income then it is time to start making some major cuts. Your non-essential expenses are the first place to look at when making cuts. These include cutting cable, not eating out, and skipping your morning Starbucks. All of these are luxuries not necessities. If you want to get financially fit, you have to buckle down and make some sacrifices. Some other ideas for cutting back could be finding a coworker to carpool with or take a look at your cell phone plan and see if you are paying for features you don’t use. These are pain-free ways to curb your expenses.
Bill Pay Days
Once you have your budget organized, the last step to organizing your finances is creating a pill pay schedule. Figure out when all of your bills are due and schedule “bill pay days” on your calendar. Be sure that you are paying all of the bills that are due before your next scheduled bill pay day. Pay day is the best day to schedule your “bill pay days” because you will have a clear picture of what you actually have to spend after paying all of your bills. Also, this keeps you from spending the money you need for bills because it is already gone.
These steps for organizing finances will have you on the right path to becoming financially fit. Once you have plugged money leaks and trimmed some expenses, you can begin setting financial goals for yourself. Set up a strategy to pay off debt. Start building your savings. Make your money work for you instead of your working for your money. Don’t forget to grab your free Monthly Budget spreadsheet before you go. It will make creating your budget a breeze! After you’re done, start organizing the rest of your stuff with A to Z Organizing.