Get Started Organizing Your Finances

October 30th, 2010 BY Claire Moore

Organizing your finances is a little like going on a diet. You don’t really want to do it, you know that it will be uncomfortable, but you also know that the payoff will be worth it.

Take On the Challenge

If you feel as if your financial life is out of control, you are not alone. I was a professional tax preparer for many years and it was my experience that most people from blue-collar workers to retired executives find it challenging to track and mange their financial affairs. It’s uncomfortable, but it’s one of those things you just have to do.

Once you get started and get a routine though, it can be easier than you think to manage your financial affairs. This book and the accompanying materials will help guide you through the process of setting up and maintaining your own financial information system. Like going on a diet, you will find that success comes not from jumping in to the deep end of the pool. It comes from making a few simple changes on a regular basis. And, over time, you will begin to see results.

Benefits of organizing your finances

So, if you are going to give up some of your free time to get organized, what is the payoff? Before I answer that, I want you to ask yourself how often you have come to the end of the month and found that you have to tighten your belt until you get your next paycheck. Haven’t you wondered where the money went and you haven’t a clue?

How about getting a loan for a car or a home? How easy was it for you to come up with all the financial data that loan officers wanted?

Or better yet, how do you feel about doing your tax return every year? After all the work and aggravation, aren’t you always left with the feeling that you could have taken more deductions if you just had the information? Given a choice between taxes and a trip to the dentist I bet you would jump into that dental chair and say “ah” in a second.

If you feel as if you are always playing catch-up, if you think that you may not be getting the best interest rate or the best car insurance rate, you are probably right. People with lower credit scores end up paying more for insurance and interest.

Want to buy a car, a home, start your own business? Want to retire early? How much can you afford to spend? How soon will you be able to make your purchase? What kind of payment plan can you afford to take on? How soon can you retire and how much will you have to have to live on? If you can’t answer these questions, then it is time to get organized so that you can get a handle on your finances and start achieving your financial goals.

So what are the benefits of getting financially organized? Now you tell me. How much is it worth to save time, money and aggravation? How much is it worth to finally have control over your financial life instead of blindly turning that control over to credit card companies and lending agencies that don’t have your best interest at heart?

How To Get Started

Ok, so you’re convinced. You need to do the financial equivalent of going on a diet. That means taking a good hard look at what you are doing now with your finance, decide where you want to be, and set a course of action to achieve the results you want.

The good news is that, unlike diets which tend to work for some people but not everyone, the tasks that you have to do in order to get financially organized are well known and time tested. Just like diets, however, this will only work if you stick to it. Let’s get started.

Getting Started: Take a look at your present state of financial health

First, let’s look at where you are now. Just as you wouldn’t start a diet or exercise program without getting a health checkup, you should get a picture of your financial health before organizing and planning. A doctor would take your weight, blood pressure and cholesterol level in order to have a set of numbers to use as a comparison. After changing your diet, you would be able to tell if what you are doing is working for you. The benefit of this exercise is that you will have a benchmark to compare with in the future in order to see if your actions are having the desired effect.

So how do you assess your present financial health condition? To do this you will create a picture of what you own, what you owe and what is yours free and clear. This picture is what is known as a Balance Sheet. If it sounds familiar, that is because you may have been asked to produce a balance sheet the last time you applied for a loan.

The Balance Sheet

Assets Assets are the things that you own that have value. This includes your home, cars, boats, motorcycles, investments, jewelry, antiques, artwork, furs, and IOUs from people who owe you money.` There are different ways to figure out how much an asset is worth. One way is just to use the original cost. Another way is to use the current resale or market value. Original cost is easy, just look at your purchase receipt. Resale cost is trickier since there is no guarantee that if you sold your asset that you would finally get the price that you think it should sell for.

For our purposes here, when listing your assets such as your car, it’s ok to use Kelly Blue Book value instead of the original purchase price of the car. Listing real estate is harder. Do a little research on values in your area by contacting a local realtor and getting information on the actual selling prices of homes like yours. Don’t go by the listing prices as anyone can ask any price for their property, getting that price is another thing.

Liabilities Liabilities are the debts that you have incurred when purchasing your assets. These include mortgages, car, boat and motorcycle loans, IOUs that you have given when borrowing money, and credit cards. Some liabilities are due in the short-term, less than a year while others are long term such as a mortgage.

Because these balances change with every payment that you make, you will have to have the latest statement every time you do a new Balance Sheet.

Equity The third and last part of a Balance Sheet is your Equity – what you own free and clear if you take all of your assets and use them to pay all of your debts. Your Equity tells you what you are worth financially. Over time, as you prepare your Balance Sheet, you can compare last month’s Balance Sheet to this month’s and see if your Equity has increased or decreased. An increase in Equity shows that you are making financial progress.

Gather your information

Ok, sounds easy enough. But where do you find all this information? It is probably laying around your house, in drawers, file cabinets, whatever. You may have even thrown it out. Not to worry, you are starting on a new plan and it may take time to get sup to speed. Remember, we are interested in making small, regular changes to achieve the results we want. You don’t have to do everything this weekend.

Here is a list of the paperwork that you need to keep in order to create your Balance Sheet. You should invest in several file folders, labels and a file box or file cabinet to hold it all. These items can be purchased economically at thrift stores, garage sales, flea markets, box stores like Target or Costco. Make a folder to keep each of the items listed below. Because Balance Sheet items last for years, each folder for cars, property, investments (including antiques, jewelry, artwork), can go on for years. So can the folder containing the loan information that for the loans that bought those items.

On the other hand, files for bank statements and credit card statements can contain the year’s data (January through December). All of the folders can be kept in your file box or in the drawer of a small file cabinet.

Paperwork needed for a Balance Sheet

  • Purchase receipts for large ticket items of value such as furniture, valuable jewelry, furs, artwork, and antiques: the number of file folders here depends on how many and how often. If you are a collector, you should consider having a file for the collectible items
  • Monthly Bank statements: one file folder for each bank account
  • Investment statements: one folder for each investment
  • Receipts for home improvements: one folder for each property owned
  • Loan documents for any loans that you have made to others: one folder for each loan
  • Loan documents (home, car, etc.): one file folder for each loan
  • Monthly loan statements: one file folder for each loan
  • Monthly credit card statements: one file folder for each credit card

Get the folders and box as soon as you can. Put labels on each folder. Start dropping in the receipts and paperwork as you locate them and on a regular basis from now on. Remember, small changes over time bring results. Congratulate yourself on starting a new habit that will payoff for you now and in the long run.

Get Started Organizing Your Finances / Small Business Bookkeeping Network by is licensed under a

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Get Started Organizing Your Finances / Small Business Bookkeeping Network by is licensed under a