You work hard to earn money but somehow by the end of the month, your salary seems to have disappeared. You hear people talking about saving and investing and you are barely being able to manage your expenses. If this sounds familiar, then you probably need to start organizing your financial life better. Making the most out of your money requires planning and discipline to avoid problems like taking unnecessary loans, missed investment opportunities, etc. In other words, an organized financial life can help you use your finances efficiently. Here are some simple steps that can help you to have an organized financial life.
Step 1. Observe where you spend your money
The most important aspect of organizing your finances if to know where you spend your money. Think about it, if you don’t know this, then how can you even start managing it? Many people find that when they start tracking their expenses, they are surprised to find how they are spending their hard-earned money for unimportant things. This can also help you identify areas where you can reduce expenses and have more disposable funds. You can use a simple spreadsheet for the same.
Step 2. Create a monthly budget
Once you know where your money is going, the next step is to create a monthly budget for your expenses. A budget is an important aspect of an organized financial life. It requires commitment and discipline. Ensure that you take all your regular and unavoidable expenses into consideration and also allow a fixed amount for leisure or indulgences.
Step 3. Track your bills
Every month we pay several bills like those for credit cards, mobile phone, electricity, etc. Every bill has a due date and if you miss making the payment by the said date, then you can attract a penalty, late fees, and other charges. These are unnecessary costs which can be avoided by ensuring that you pay your bills on time. And the best way to do that is to keep a track of the due dates of all your regular bills.
Step 4. Automation is your friend
In today’s times, with technology changing the way we do a lot of things, you must use automation to help you organize your finances efficiently. Here is what we suggest:
- Set up an automated payment facility for as many bills as possible. This can help you reduce the time you spend on making individual payments and ensure that you never miss the due date and save on late fees, penalties, etc.
- You can also set up an automatic transfer of a pre-specified amount into a fixed deposit or a recurring deposit. Add this amount to your budget under the heading ‘Savings’. Also, ensure that you save this amount the day you receive your salary. This will allow you to inculcate the habit of savings and eventually build some capital.
- Once you have a reasonable amount saved, you can use automation to invest in your preferred assets like equities, mutual fund, etc. on a regular basis.
Step 5. Define your Financial Goals
It is easier to organize your financial life if you have a goal to work towards. Financial goals help you stay focused and disciplined and stay away from the next shiny thing in the market. A financial goal must be specific and measurable. It should also have a deadline. Some examples of financial goals are:
- Clearing off all credit card debt within X months
- Saving a fixed amount every month and creating an emergency fund for the next year
- Saving for the down payment of the house that you plan to buy, etc.
Remember, a financial goal should be defined after considering several factors and it should be important to you. Only then will you stick with the plan and get your finances organized.
Step 6. Maintain a database of your accounts and investments
Organizing your financial life also means that you must have a database which has the details of your accounts and passwords. A quick glance at the database ensures that you never lose sight of anything. Also, in the unfortunate event of something happening to you, your loved ones can find this database invaluable.
Step 7. Audit your accounts and documents annually
You might change your phone number or email address or your place of residence over a period of time. Therefore, it is important to you check your accounts and documents at least once every year to ensure that they are up-to-date. While this may seem unnecessary, this practice is beneficial in the long run.
Also Read: The importance of saving and investment
Some Additional Tips
The steps mentioned above can help you get your financial life organized to a great extent. Here are some more tips to help you along the way.
- There are many technological tools (software, apps, etc.) which can be used to make this process faster and easier.
- Try to keep things simple. Do not open too many accounts or use too many apps or software. This can make it harder to manage. Simplicity is the cornerstone of being organized.
- Talk to an investment advisor if you need the initial push to get started.
Remember, if you have never organized your finances or paid enough attention to them, you have to put some effort in the initial few months. However, as time goes by, most of the tasks will get easier and you will not have to spend so much time behind them. An organized financial life is the first step towards a financially independent future. Follow the steps and start organizing your finances today!