Struggling with finances and you're not sure why? You probably need to work on getting more organized. Let’s face it, no one succeeds financially without first getting their finances in order. When you're unorganized, every part of your household finances suffers to some degree.
In this article, I’ll show you the basics of how to organize your personal finances. It’s much easier than you think, and once you do it, you’ll discover that achieving your financial goals is easier than you ever thought possible! At the end, I’ll also let you in on the details of my latest course that will teach you even more than you can get from this blog post.
Organize Your Finances
In my experience interacting with thousands of my readers over the years, I believe most financial problems originate with a simple lack of financial organization.
When your disorganized financially, it stunts your potential and keeps you from living your best life. Think about it- when you don’t know where your money is going and there never seems to be enough, it’s tremendously stressful!
It’s harder to afford the things you need and want. You have difficulty saving money, and you never seem to be able to get ahead financially.
You can never achieve the freedom and peace of mind that comes with getting your money under control.
The Benefits of Getting Your Finances Organized
Fortunately, getting your finances in order isn’t that hard if you’re really motivated. It might take a little time, and you’ll definitely need to change some habits. But once you get everything in place, your finances will run like a well-oiled machine!
Of course, organizing your financial life has some great benefits, such as:
- More cash in your pocket
- Less financial stress
- More freedom to live and work the way you want
- Putting more money into savings
- Saving more for retirement
- And much more…
Why Do You Want to Organize Your Finances?
When you finally decide to get your finances in order, the first thing you need to do is to figure out your “why”.
Do you want to retire at an early age? Want less financial stress in your life? Do you just want to get the bills paid every month and have a little spending money for yourself?
No matter what your “why” is to organize your finances, keep it at the forefront of your mind while you’re learning new financial habits. When the going gets tough, it helps motivate you to keep going and finally get your finances on the perfect path.
1. Write Down Every Expense
Your first order of business to getting your finances organized is to understand how you spend your money. To do this, you should write down every single expense for the next 30 days.
Every time you spend money, whether it’s for a monthly bill, a fast food meal, or even a pack of gum, write it down.
Doesn’t matter if you use cash, debit card, credit card, a check, an app, or whatever… write it down! You can keep track in a small notebook or the note taking app in your smartphone. It doesn’t matter how you do it, as long as you write down every expense. You’ll use this info later in the process.
2. Set Your Priorities
Now that you know your “why”, It’s time to figure out what your priorities are when it comes to spending money and managing it better.
Everybody has different priorities- what’s important to you may not even register on my radar screen. How you spend your money, and what you spend it on, is a highly individual thing.
What’s Important to You?
There are likely some things you spend money on that don’t matter much to you at all. On the other hand, you probably have some things you spend money on that you absolutely, positively, don’t want to do without.
Sometimes, the difficulty lies in figuring out what is absolutely necessary to spend money on, and what can fall by the wayside.
Make a List of Spending Priorities
That’s why you need a list of spending priorities. At the top of the list should be items such as food, water, electricity, transportation, etc. These are the important things you need to survive, keep a roof over your head, and have transportation to work.
Next should be items that are important, but not needed for survival. This includes items like the phone bill, new clothing, child care, etc.
And finally, at the bottom of the list should be things that are totally discretionary such as eating out, entertainment, hobbies, etc.
Here’s a sample list of spending priorities (from most important to least important) you can use as an example in making your own:
- Water bill
- Electric bill
- Gas for the car/bus fare/train fare
- Phone bill
- Child care
- Car maintenance
- Cell phone bill
- Eating out
- A new pair of earrings
Of course, your list will be totally unique to you and how you live your life. If eating out is more important to you than new clothes this month, then move it up the priority list. Just make sure your list accounts for everything you will spend money on over the next month.
3. Understand Your Financial “Big Picture”
One of the most important things you can do on an ongoing basis to ensure financial success, is to know where you stand financially at any given time.
Most people have a seriously limited view about their overall financial situation.
You might know how much you have in your checking account to get by until the next paycheck. But you likely don’t know valuable details such as:
- How much your investments are worth
- The amount of equity you have in your house
- Retirement account balances
- How much total debt you owe (credit cards, car debt, mortgage, etc.)
- What your net worth is (whether it’s negative or positive, you need to know this)
Just knowing your checking account balance doesn’t give you a complete financial picture- not by a long shot!
That represents a short-term mentality that, frankly, is the mentality that most people (who are broke, by the way) have when it comes to money.
Yes, you definitely need to know how much is in your checking account at any given time.
But you also need to regularly get a 30,000 foot view of your finances at least once a quarter. It’ll help you get a grip on where your entire financial situation stands now, and how you can improve it going forward. I get into a lot more detail on how to do this in my Divine Art of Money… course.
4. Evaluate Your Housing Expenses
For this lesson, I want you calculate your housing cost as a percentage of your take home income. It’s an easy calculation to do:
Housing cost (rent, mortgage payment, etc,) ÷ Monthly take home pay = Housing as a percentage of your income
Here’s an example:
$1,200 monthly rent ÷ 5,000 monthly take home pay = .24
So, in this example, rent is 24% of your take-home pay.
Keep Housing Expenses Under 25%
Obviously, your goal should be to keep housing expenses to as small a percentage of your take home pay as you can.
Generally, you want to keep it to less than 25% of your take home.
In most areas of the country, keeping housing expenses under 25% can be achieved quite easily whether you rent or have a mortgage.
However, if you live in an extremely expensive area such as New York City, Los Angeles, or the San Francisco Bay area, your target may need to be as high as 30%.
5. Evaluate Transportation Expenses
Transportation is another large expense that tends to weigh your finances down like a sumo wrestler in a Smart Car. Transportation expenses include things like:
- Car payments
- Bus/cab/Uber fares
Car payments, on average should be as small a slice of your income as possible. Experts vary widely on how much your car payments should be as a percentage of income. But in general, they recommend that if you have car payments, they should be between 10%-20% of your monthly take home pay.
I’m a little more extreme though. In fact, I recommend you avoid car payments at all costs.
Yes, you CAN pay cash for your cars, but that’s another discussion for another day. First things first, though.
How to Reduce Transportation Expenses
When you add up your monthly transportation expenses, you might be shocked at how much you’re spending. Of course, it’s better to keep your transportation expenses as low as possible. Some things you can do to reduce transportation expenses:
- Eliminate car payments by paying cash for your cars.
- Shop around your car insurance rates every year.
- Buy a vehicle with better gas mileage.
- Carpooling with a friend or coworker.
- Walk or bike whenever possible.
6. Evaluate Your Monthly Expenses
Remember the list of expenses you wrote down for 30 days? That will help you discover where you may be spending money unnecessarily. Beside each item on the list, note which items are “needs” and which items are “wants”.
Most experts recommend that your needs should take up about 50% or less of your take-home income. Needs are things like:
- Transportation expenses
- Health Insurance
- Cell phone plan
A need is anything that keeps you fed, provides a roof over your head, keeps you healthy, and helps you keep a job.
If your needs total more than 50% of your take-home, you should consider ways to trim some of those expenses to get them below 50%.
How to Save Money on Needs
Some of the best ways to save on needs-based expenses:
- Finding ways to save money on utility bills.
- Getting cheaper health insurance. Medishare is a well-respected affordable alternative.
- Shopping around for cheaper car insurance.
- Reducing transportation expenses (see lesson for Day 8)
- Using coupons and shopping at a discount grocery store.
- Reducing your cellphone plan.
- Find cheaper car insurance
Usually, the biggest impact on your bottom line comes from saving money on your largest expenses, such as healthcare, housing expenses, and transportation expenses.
These areas are where you should focus your effort first.
Now let’s focus on your “wants” expenses. They should consume about 20-30% of your take home pay.
Of course, wants are expenses that aren’t totally necessary, but they definitely make life more livable.
Unfortunately, most of us have become so accustomed to having our wants that we think they’re actually needs.
For instance, I’ve had a lot of discussions over the years with people who are in over their heads financially. In almost every case, they have a seriously skewed vision of wants vs. needs.
Here’s a list of some of the common “wants” that people tell me they “need”:
- Cable TV, Netflix, Disney+, Hulu, etc.
- A gym membership
- Eating restaurant or takeout meals several times a week
- Coffee from your favorite coffee shop
- Gaming subcriptions (Xbox, etc.)
- Season tickets to sporting events
Seriously, all these things are nice to have if you can afford them, but in the long run they are not needs. They can suck you dry if you’re not careful.
If your wants are more than 30% of your take home income, you can do without some or all of them until you can afford them, or at least find an alternative that’s free or significantly cheaper.
7. Automate Your Bills
One thing I run into with people who are financially disorganized, is that they avoid paying bills like the plague. I’m not saying they DON’T pay their bills, it’s just that they hate doing it, so they procrastinate.
As a result, they frequently pay late fees on their bills.
Of course, sometimes the bills don’t get paid on time because they don’t have the money when the bill is due (we’ll address this later).
But, more often than not, it’s simply due to a couple of things that can be fixed quickly and easily:
- You get busy and let the bills sneak up on you
- You procrastinate because you hate paying bills
Nobody Enjoys Paying Bills
Life gets busy. There are a thousand details you have to deal with every day, especially if you work and have a family. It’s really easy to let the due date for a bill sneak up on you when you’re dealing with work, kids, church, community activities, etc.
Plus, nobody enjoys sitting down and paying the bills.
Paying bills is painful!
It’s one of those necessary activities most of us completely avoid until we absolutely have to deal with it.
So you procrastinate. And before you know it, you’re late paying the bills, you incur late fees, and cause yourself unnecessary financial and emotional stress.
Automate Paying Your Bills
A great solution to eliminate procrastination and stress is to automate paying your bills.
Think about it- bills are always due at the same time every month. So why not have an easy automated system that takes care of that for you instead of wasting your time and causing you stress?
How to Automate Your Bills
Pretty much every bank now has the ability for you to set up autopay for your bills.
You can do it in just a few easy steps:
1. First, gather all your monthly bills (including utilities, debt payments, and any other recurring bills).
2. Next, log in to your bank account
3. Go to the Bill Pay area in your account, fill in the information for each monthly bill, and schedule each bill to be automatically paid from the bank account of your choice on the appropriate day each month.
4. It’s really that simple!
Automation Saves Time and Stress
Anytime you can set up an automated task in your life that saves time, reduces stress, and gets you financially organized, you should do it.
And automating your bill payments every month definitely fits the bill (pun intended)!
If you already have a good handle on your bills, pay them on time, and don’t stress out about them, then organizing your finances through automating might not be of much benefit. But for most of us, it’s a real stress reliever!
8. Automate Your Savings
If you have trouble with being disciplined about putting money into savings, the best thing you can do is to take the decision out of your hands.
Automating your saving achieves the same thing as automating your bills. When you put your savings on autopilot, you only have to make the decision one time, instead of struggling with the discipline of making that decision every single time you get a paycheck and failing on a regular basis.
You’ll save a ton of time and stress, and you will save a ton more money than you otherwise would have!
Automating your saving means you don’t have to exercise discipline every time you get paid, and risk failing, which is so often the case.
15% of Your Pay
You should be putting 15% of your take home pay into savings out of each paycheck. Here’s where the money should go:
- First, save money to build up your beginner emergency fund of at least $1,000.
- Next, pause putting money into savings, and aggressively pay off your consumer debt. Pay off everything except the mortgage.
- Then, build a larger emergency fund of 3-6 months of expenses.
- Once your emergency fund is complete, set up your accounts to automatically send 15% of every paycheck to your IRA, Roth IRA, 401k, or other retirement accounts.
I get that doing it this way seems a little convoluted. But here’s the deal- when you organize your savings in the right way that’s been proven to work, you will build wealth like nobody’s business!
9. Schedule a Financial Date with Your Spouse
If you’re married, one of the most important things you can do to get your finances organized is to make sure that both of you are on the same page about money.
After all, it’s the issue that couples fight about the most. Unfortunately, money is also the most common issue leading to divorce.
How to Get on the Same Page Financially
So, when it comes to getting on the same page financially with your spouse, what does that look like?
- It means you both stick to a monthly family budget. It doesn’t matter who puts it together, as long as both of you agree to what’s in it.
- You both have a say in how the money is spent.
- You agree to keep no financial secrets. No secret accounts, secret credit cards, or other shenanigans.
- You both are willing to compromise as needed to make the budget work and not spend more than you make.
- Both of you always have access to the finances. One spouse should never have total control except under extraordinary circumstances (i.e. one spouse has an addiction or is a compulsive spender, etc.).
Money Fights Will Stop
I can tell you from my own experience, when Angie and I finally got on the same page financially, the money fights stopped…
I don’t mean they got less frequent or less severe, I mean we haven’t had a money fight in 15 years- period!
It’s truly amazing the transformative power that good communication and a solid plan for organizing your money can have on your relationship!
The more you start pulling together financially, the better it is for your money, your marriage, and your overall happiness!
10. You Need a Budget (It Will Seriously Change Your Life!)
One of the most life changing things you can do to organize your finances is to start doing a budget consistently.
I know it doesn’t sound sexy (or even remotely enjoyable for that matter). But budgeting is the one thing that will set you up for financial success far into the future when you fully commit to it.
The Truth About Budgeting
You might find it a little tedious and difficult at first. I know it took me a few months to completely wrap my mind around it in the beginning.
But I will tell you this- doing a monthly zero-based budget is the number one thing that has put Angie and I on the road to financial success!
That’s not just a bunch of hype, it’s just the straight truth!
Millionaires are Budgeters
In fact, in his extremely well-researched book Everyday Millionaires: How Ordinary People Built Extraordinary Wealth―and How You Can Too, author Chris Hogan shows us that well over 90% of millionaires do a budget every single month.
This is not what they started doing once they became millionaires- it’s what they did for decades while becoming millionaires!
Check out my Budgeting page with plenty of free budgeting resources just for you.
11. Use the Envelope System
Once you start doing a monthly zero-based budget, there is one more thing you should do to make it work to maximum effect to organize your finances.
I’m talking about using the envelope system.
The envelope system is a simple way to distribute cash from your monthly budget to use for your daily expenses.
How the Envelope System Works
You place cash in an envelope (either physically, or using an envelopes app connected to your bank account) for each category of your budget to spend throughout the month. When there is no more cash in the envelope, you don't spend any more on that category.
For instance- if you budget $300 for eating out this month, you will put that amount in your “Restaurants” envelope. Every time you eat out, you use the money in that envelope to pay the bill.
If you use all the money in the envelope before the month is up, you don't go to a restaurant until you complete your next monthly budget and replenish the envelope. It's a simple way to organize your finances to ensure you never spend more than you make!
You should use envelopes for frequent expenses in your budget, such as:
- School supplies
- …anything else you frequently spend money on
It’s a bit of a transition to learn how to use the envelope system. But when you commit to it, you’ll get the hang of it after a few short months.
Angie and I have been using the envelope system for well over a decade now. It has saved us countless thousands of dollars and plenty of money fights over the years!
Here’s a detailed post on how to set up and use the envelope system.
12. Maintain These Habits Forever
At this point, you are starting to win with money. If you complete all the steps above, you’re on your way to gaining complete control over how your money flows each and every month. You finally have your finances organized!
You’re building a strong financial foundation that will keep you moving forward to massive financial success!
But this is only the beginning.
At this point, you should continue to build on the good financial habits you’ve learned here for the long term.
Don’t stop now, because if you do, you will revert right back to your old habits, and nobody wants that!
Maintain these habits forever!
Need More Guidance to Organize Your Finances?
If you would like a much more highly detailed, step by step method to organize your finances, you can take my popular online course, The Divine Art of Money- 21 Days to Manage Your Money Like a Pro!
You’ll learn everything you need to get your finances working like a well-oiled machine. You will never spend more than you make again!
The course includes:
- 21 lessons, ranging from 15 minutes to 1 1/2 hours each, to take at your own pace
- Clearly written, easy to implement material
- 5 Tutorial videos showing you exactly how to do what we teach
- 14 Fill-in-the-blank worksheets to help you understand your finances better, cementing new knowledge/habits into your life.
- EXTRA BONUS: Now you have the option of fillable worksheets. Fill them out electronically and they automatically do the calculations for you!
Go to the Divine Art of Money home page.