How to Organize Your Financial Life
Michael Reynolds, CFP?
CERTIFIED FINANCIAL PLANNER? (CFP?) Fee-only Fiduciary Financial Planning & Investment Management. Host of Wealth Redefined? podcast.
Being organized is one of the most effective ways to make progress in your financial life. It can be difficult to manage all the demands placed on us every day and money is often the underlying foundation in all of it.
Whether you need to find records for that medical bill you paid two years ago or you simply need to figure out where your money went this month, being organized will set you up for success as you work toward your goals.
There are a number of ways that you can keep your finances and your records filed and accessible and get maximum visibility into your money.
Have a trusted filing system
One of the most important ways to keep your financial records organized is to have a trusted filing system.
Your financial filing system is where you keep important documents like:
Having a single trusted place for all your important financial documents means you have everything you need in the event you need to apply for a mortgage, reimburse yourself from your HSA, file an insurance claim, or track down a donation.
There are plenty of options for storing your documents. My preference is to use a cloud-based systems like Google Drive. This allows you to share documents with a spouse or partner as needed, and also keeps your documents safe in the event that something happens to your computer.
Google Drive encrypts data in transit and on the server so it’s generally pretty low-risk. However, it’s a good idea to encrypt your sensitive documents (such as tax returns) with a password as an added layer of security. Just make sure you use a password you can remember.
It’s also critical that you use a strong password on your Google Account and enable 2-step verification.
Other options include cloud options from Microsoft, Apple, or Dropbox. There are others beyond these mentioned, as well. The important thing is that you use a system that is secure and easy to use.
You’ll also want to make sure your filing system is structured for ease of use. For example, a folder called “Taxes” might hold your tax returns and all tax-related documents. A folder called “Medical” would hold your medical records. Your “Insurance” folder would hold things like life insurance policies.
Embrace automation
Another great way to stay organized is to automate as many of your bills and transfers as you can.
Mortgage payment every month? Set it on autopay. Roth IRA contributions? Set up a recurring contribution that happens on the first. The same goes for utilities, insurance payments, debt payments, and anything else that can be automated.
By setting up automation, you avoid the hassle of “paying bills” and also ensure that you don’t miss any payments.
Automation can also be part of “paying yourself first” which means that you are prioritizing the most important goals before anything else.
Get visibility into your cash flow
Budgeting can be a charged word for some of us. However, getting clear visibility in your cash flow is one of the most impactful things you can do to make progress with your money.
There are many ways to budget your money. One of the most powerful tools for planning out your cash flow is?You Need a Budget (YNAB). There are alternatives as well, such as Mint, Monarch, EveryDollar and others. While I don’t recommend it, some people even use spreadsheets.
If detailed budgeting is not something you feel that you can do right now, there are other budgeting styles, such as?reverse budgeting.
No matter what style of budgeting you choose, you still need to pay attention to where your money is going.
A quick hack that can help is to set up your bank account to send you an email or a text for every transaction. This way, you get real-time alerts whenever money is deposited or spent. Even if you’re not doing a formal budget, this can help you stay aware of your cash flow in real time.
I don’t use credit cards?but I realize that I’m in the minority. If you are like most people and use a credit card for just about anything, you can do the same thing by setting up an alert for every transaction.
Organize your bank accounts
How you organize your bank accounts?can have a significant impact on how your money works. I’ve seen many people that simply have one bank account for everything. I’ve seen others that have 17 different accounts sitting around, many of which have no clear purpose.
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Generally, somewhere in the middle works best. The important thing is to be intentional about your banking structure.
I find that 2-4 bank accounts (all at different banks) are ideal for most people:
This applies to individuals who are single, or to couples who combine finances (which assumes these are joint accounts). If you?manage money as a couple?using a hybrid system, you can still apply this to any accounts that are individual or joint depending on how your household is structured.
Your operating account is your main “everyday” account that paychecks flow into and expenses flow out of. Pretty standard.
Short-term savings is your emergency fund + your savings for larger expenses. Some would argue that your emergency fund should be separate from your general savings. I used to agree but after thinking it through, I realized that if you have an emergency and need to use it, you’ll end up transferring money from your general savings back into your emergency fund to replenish it. Therefore it seemed silly to separate them. So now I recommend keeping them combined but setting a threshold for your emergency fund that you don’t go below unless you have a true emergency.
Alternative: you may also want to consider using?I Bonds as your emergency fund. This does separate the accounts (which I just recommend against) but it has a unique behavioral aspect to it that can be beneficial. Options are good and there is no one-size-fits-all.
What about travel and vacation? If there’s one thing I see over and over that blows up a budget, it’s travel. This is why I love having a separate account just for travel and vacations. By?automatically transferring money into it every month, you build up a travel budget that you can use for vacation-related expenses. It’s a great way to keep travel from destroying your budget (which it will do if you aren’t intentional about it).
The tax account is for business owners who need to pay?quarterly estimated taxes. It’s super important to keep money for these payments organized because the last thing you want is to get behind on your taxes.
For a more in-depth overview of organizing your bank accounts, see:?How I Organize My Bank Accounts (A Blueprint for Structured Banking).
Use a password manager
Passwords can be frustrating! It sometimes feels like our whole lives are spent trying to log into various sites and getting stuck.
One of the best ways to reduce friction and stay organized is to use a password manager as a central location for all your passwords.
There are multiple options for password management, including:
No endorsement or affiliation implied with any of these.
A password manager can not only help keep your passwords organized, but can also increase your overall security by generating unique strong passwords for every site you log into.
Keep physical documents in a safe
Just about everything in our financial lives these days is digital. However, it is important to keep some physical paper documents. Some examples include:
While keeping digital scans in your secure file system can be helpful, you want to have the originals readily accessible.
The ideal scenario is to keep these documents in a strong fireproof safe.
Since these are documents that loved ones may need to access in the event of your death or incapacitation, it’s a good idea to give the combination or a spare key to a trusted loved one.
Staying organized helps you win with money
There are many paths to building wealth and reaching your financial goals. Keeping your financial life organized is crucial for managing your money effectively and achieving your financial goals.
Furthermore, organization can help reduce financial stress, minimize costly mistakes, and empower you to make informed decisions about your financial future. As you invest time and effort into organizing your finances, you will not only experience immediate benefits but also lay a strong foundation for a secure and prosperous financial journey in the years to come.