Dealing with finances may sound like a daunting task, but like anything else, once you get organized, it’s a lot less intimidating. The question is, where do you get started?
Here are some tips to organize your finances and help you feel more comfortable with handling them.
Gather your statements
The first step to creating a budget is to pull together all your financial statements, whether you receive them in hard copy or digital form.
Your list should include:
Utility bills — Electricity, water, gas, garbage collection, sewage
Bank statements — Where you’ll find things like grocery receipts and gasoline purchases, along with other retail purchases
W-2 forms and pay stubs
Credit card and loan statements
1099 forms detailing miscellaneous revenue
It’s a good idea to have both a neatly organized filing cabinet with all your files and duplicates stored digitally on an external hard drive or in the cloud, so they’re protected. If you store your financial data online, be sure to use a secure password to guard against identity theft.
Track your income and expenses
Once you’ve got copies of all your statements, divide them into two categories: income and expenses.
Add up all your regular income to get a total for the year. Don’t use windfalls like bonuses and tax refunds as a pretext to increase your monthly expenses. Since they’re one-time payments, put them toward one-time expenses or, better yet, toward savings or investments.
Once you’ve added up your income, make a list of your expenses. If your expenses are more than your income, see what you can cut. Look to discretionary items like streaming services, subscriptions, clothing, evenings out (sporting events, movies, concerts), books, games, and electronics. If you add to your income by getting a raise or side income, you can add some of those items to your budget again.
Once you’ve got your budget in place, You’ll want to include:
Monthly expenses
Necessities like utilities, rent/mortgage, car payment, internet access, and insurance payments
Any extras you pay for regularly, such as cable TV, streaming services, subscriptions, and so forth
Regular but less frequent payments — Include things like property taxes (if you pay them), back-to-school items, regular medical and dental checkups, vehicle maintenance, estimated taxes, birthday presents, and holiday gifts. These would include any payments you make quarterly, semiannually, or annually.
One-time or occasional expenses — Entertainment like movies, eating out, going to concerts, or weekend trips
Things to save up for — Vacations, retirement, children’s college expenses, investments
You can use an old-fashioned spreadsheet to organize your finances, or you can find a wealth of digital resources you can download. PC Mag has compiled a list of the best digital options.
Create a regular budget
Once you’ve got everything mapped out, you’re ready to set up a regular budget. You can do this with a spreadsheet program or with the help of a budgeting app. Several are available, depending on your specific situation and needs.
Among other options, you can choose budget apps that are:
Free to use
Designed to help you invest and build wealth
Meant to guard against overspending
Intended for couples working together
Built for small businesses
Intended to encourage savings
If you prefer to do your budgeting with pen and ink, you can also print out PDF templates. Keep past months’ budgets, your current month’s budget, and blanks for future months in a handy three-ring binder for easy access.
If you work on commission, and your income varies from month to month or season to season, use times when you’re doing well to set aside a cushion for the lean times and work to balance things out.
Set up automatic payments
In addition to budget apps. look for other electronic methods to simplify the budgeting process. Set up automatic bill pay with your bank for any monthly expenses that cost roughly the same amount from month to month.
Sign up for withdrawal or payment alerts to confirm any debits to your account. This can help you monitor any potential fraud or identity theft before it gets out of hand. If you see any withdrawals or charges you don’t recognize, you can dispute them with your bank right away.
Low-balance alerts, meanwhile, can let you know if your account is in danger of being overdrawn. But don’t rely on them as a substitute for tracking your expenses.
Check your account balance daily, and look over your monthly balance report for any trends that show you’re overspending (and on what), or putting more money away than you thought. If these trends persist for more than a month, you can adjust your budget to reflect them.
Of course, there’s nothing wrong with the old-fashioned method of keeping track of checks with duplicates, receipts, and a ledger. Monthly statements can come to you via mail or electronically too.
Stay on top of your credit
Any credit card purchases should be part of your regular budget, not a way to spend “outside the lines.” That doesn’t mean you should shy away from using credit, however.
Building good credit can give you a way to qualify for a mortgage, car loan, or home-repair loan down the line, and you can incorporate that into your financial plan then. In the meantime, check your credit report (you can do so for free once a year) and see where you stand.
If your credit is damaged or you need to start from scratch, one option is a secured credit card, which will give you access to a line of credit that’s tied to an initial deposit of a few hundred dollars. You build your credit as you use the card and make on-time, regular monthly payments.
If you use credit, try paying off all your balances at the end of each month to avoid interest charges.
Getting your finances organized isn’t rocket science, but it does require a comprehensive approach that incorporates attention to detail. Once you understand how to balance these approaches, you’ll be one step closer to financial stability and in a position to improve your standing.
By Ann Lloyd, Student Savings Guide
