How To Organize Your Finances

If your anything like me, you’ll know the feeling of cringing at the numbers showing up as you check that bank account after a night out. You also may know the feeling of dread as you go to pay for that McDonald’s meal and your not quite sure if you have the funds to not get a big beep and – declined – showing up on the eftpos machine. Maybe these aren’t your problems but you’ve got the infamous demon of debt looming over your head ready to take it clean off. If any of these situations relate to yours its more then likely you’ve got a money organization problem my friend.

The Usual Situation

Usually an unorganized person will have two accounts, a savings account and a spending account, they will dump as much of  their money into the savings account as they can but they haven’t planned properly and within a few days they will be taking money out of this sacred stash. What this does is reinforces a feeling that money can be transferred at a whim and minimal to no savings will really happen. Now what this attitude is caused by is a lack of planning and preparation and a very standard outlook on that sum of money you own. The unorganized person see’s their money as a single lump sum where whatever they don’t use they save, or even if they have a set amount to save they categorize the rest as money to spend on everything else, this causes massive confusion and disarray.  No matter how small an amount of money you receive at a time you have to ‘organize’ it.

So what is this fabled “organization” you speak of?

Until recently, being financially organized was a foreign concept to me, as I experience more in life I realize that It’s something that is totally achievable and it takes less effort then you may think. Just a little bit of thinking. Organization means that no matter what time it is, where you are or what your doing, you know what is going on with your money. How can you expect to make money or feel stable if you don’t even know what your money is doing. I am going to help you reach this point of organization.

Doing The Deed.

Organization comes in two parts:

• One – Realizing what needs changing.
• Two – Changing it.

Its as simple as that really, now all we need is a process.

Firstly, we need to sit down and assess the current money situation. How much money are you getting in each month (I like to do things monthly because weeks are too inconsistent) and how many outgoing expenses you have and the necessity of these expenses. Also are you in debt, this one is important because credit debt is a killer for the potential saver.

Secondly, now is the time to rid any unneeded expenses, these are things like subscription services, cable television, high speed internet, unused long distance service or your land line phone if you use a cellphone. You know what you need and don’t need. Just remember to still have fun.

Ahh…that feels better already, now we need to organize how we manage our money and get a more correct attitude for the situation. Thinking of your money as one lump sum is unhealthy for a number of reasons, mainly because you can’t visualize where your money is needed. I recommend going down to your bank and having a chat with one of the nice employees and telling them you want to start controlling your money and your going to open a few accounts. They will then take you over to a desk and ask you what you would like to do.

What you should do is open accounts such as these:

• High Interest Long Term Savings Account – I have a Superannuation Fund for this. You should be able to set this up so that there is a charge or a loss of interest for taking money out of this account. This is good to train yourself to be careful putting money in. The stuff in here should be compounding like crazy so don’t even think about touching it. This account gets at least 10% of your salary or earnings. 30% would be better.

• High Interest Short Term Savings Account – I have one of these set up with no loss of interest or charge for taking money out. This is used for the irregularities in your routine such as medical costs, vehicle maintenance, emergencies etc. Try to keep the money in here sitting tight. The amount you enter here you will have to regulate, try to get 3 months worth of your irregular expenses into here at any time.

• Bill Paying Account – This account is going to be automatically direct debited for all your bills each month so you don’t have to think about paying them separately. you should already know how much you need in here each month. An exact amount with a buffer (in case expenses change somehow) should be all that is required here.

• Access Account 1 – Living Expenses Account. Cheque or Savings on your ATM card. This account is all your living expenses such as food, petrol/gas, entertainment, public transport etc. Work out what you need each week to live, work it out monthly and then put a slight buffer on it.

• Access Account 2 – Extra Spending Account. Cheque or Savings on ATM card. Whatever you have left over at the end of the month goes into this baby. This would be the last account to receive money. Any money in here you can use to buy fun things you’ve had on your mind such as those new jeans, that road trip you’ve been mentally planning, getting yourself transformed into a dolphin via plastic surgery or whatever else your wacky brain can think of.

Other Tips

Carry cash on you – cash gives you a visual representation of how much money you have. Just remember what that cash is for.

Keep receipts for everything – and i mean everything. Even if its for your own personal records and not tax. Make a folder and organize all your receipts according to date. This is especially necessary for business.

Claim tax back – This one is related to keeping your receipts, my time as a student taught me that there is so much more that you can claim for your education than you think. Everything from your home internet connection, new laptop, headphones to bus money and petrol, even concerts are deductible when your studying music. Just keep your receipts or you won’t get anything.

Use various money/budget managing programs or applications such as Apples “Money”, ANZ Money manager or Smarty Pig if your in Australia. There are quite a few international sites like this.

Note: This method of money management is similar but different to standard budgeting. Budgeting implies keeping your money in one or two lump sums and having your plans written down without your finds being physically separated. While some may find this works for them, I could not get my head around it, I like to be able to see what my money is doing.

And the biggest tip is not to get stressed out over a bit of money.

Enjoy It.

After sorting all this out, make sure you keep on top of it. If you don’t want that many accounts i must say that there are no rules just suggestions. This has worked for me and my head feels much clearer. Its the same feeling as de-cluttering your room or house, its hard to get started but once its done you feel much better.

Until Next Time,

Goodbye

Photo Courtesy Of: Daniel Starrason – Check out their flickr

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