Having well-organized finances is beneficial for a number of reasons. Not only does being organized mean you can enjoy financial independence and have no need to take on any type of debt unnecessarily, it gives you peace of mind and ensures you can have positive thoughts and feelings about money, and use your organized state to save and plan for a bright and exciting future.
Leaving money worries behind means knowing that you have things under control. You can free up valuable time and energy so that you can get on with actually living!
One of the great things about financial planning is that you can be organized, successful, and maximize your money whatever you earn, leaving you to enjoy life and focus on the things you enjoy. Here are seven tips for successfully organizing your finances.
Know Your Disposable Income
Income – write down all the ways you earn income each month – whether that be salary, investments, rent etc…. – whatever comes in goes here.
Expenses – All the things that you HAVE TO spend money on each month – otherwise known as your fixed outgoings. These can be such things as bills, rent/mortgage, fees, insurance etc…..
To lower expenses read: 10 Ways to Maximize Savings in 2020
Once you have taken away your expenses from your income then you know what you have left to spend on entertainment / holidays / extras etc…. (this is your disposable income)
If you can understand your position each month you can start to tweak things to match what you want from life and what you need. For instance, you may decide that you need to spend less each month on entertainment as you simply don’t have the funds. Or you may want to start saving more as you have more disposable income than you first thought.
A budget will help you to start to be more in control of what you spend your money on, and be more aware of it.
Make Savings Non-Negotiable
Many people who don’t have savings will use the excuse that they don’t have the money to do so, yet will actually be spending their disposable income on things they don’t really need. If you’re serious about organizing your finances, making savings a fixed, non-negotiable expense similar to your mortgage or other regular bills is worth doing. This ensures you’re always saving and putting money away – even if you don’t have a specific savings goal – and means you’re covered for unexpected expenses or life events, such as needing to undertake emergency home repairs or being made redundant.
Having the equivalent of six months’ income saved is often cited as a good starting point, and means you’re well covered for whatever life throws at you from a financial perspective. If you don’t need the money for emergencies, you’ll at least have a good safety net if you want to leave your job to start a business or take an extended break.
Pay All Your Bills on Time
One of the easiest ways to lose money is to not pay a bill that is subject to a late payment charge if you’re as much as a day late with it.
Considering how easy it is to set up direct debits today, there is no reason for this to happen to you. By setting up your direct debit you can ensure you choose a day that best suits you and easy track within your budget planning to never miss a payment.
Plan to Avoid Bank Charges
One often self-inflicted financial problem is not having enough money in the bank to cover a direct debit payment, which gives the double problem of a bank charge as well as a potential late payment fee, ouch!
An additional bank charge too many people accept and consider a part of life is interest and other charges related to an overdraft. While an overdraft is a useful and sometimes necessary safety net, it should be used as just that, a just in case measure.
If you find yourself using your overdraft as essentially a credit facility, try using the savings you amass through budgeting to ensure you’re living with your bank balance as zero as much as possible.
Maintain a Great Credit Report
If you pay all your bills on time and do your best to avoid bank charges, then you’re probably already doing a great job of maintaining a great credit report and score. While this may not help you save money on a day-to-day basis, it does mean you will be offered better interest rates should you apply for a personal loan or another form of credit.
Ensuring your finances are in order every step of the way will make it easier for you to get loans, mortgages, etc. and usually with more preferential rates.
Take Advantage of Technology
A great way you can take advantage of technology is to use online banking services and online account management for credit cards and any other personal finance or credit products you use.
This means everything will be kept in one place, and if you ‘go paperless’ you save yourself the stress of managing statements and keeping them stored safely at home.
Prioritise Debt Repayments
Prioritize debts and pay these off as quickly as you can – as the interest they create will simply grow if you don’t.
Make as many cutbacks as you can now to pay off your debts as quickly as you can.
Debt usually has the highest interest rate (just look at your credit card and you may be shocked at what its costing you if not paid back each month).
The key to managing debt is to work out the interest rates and pay off what’s costing the most each month, that way you aren’t wasting money on interest when you could actually be paying off the debt.
Focusing on clearing your debts will:
- Make you feel better
- Give you a feeling of control back over your finances
- Help prevent damage to your credit score beyond any already incurred
- Reward you with a large chunk of your income when you have paid them off in full and now have the disposable finances to use as you please
There are many ways to go about tackling your debts, two very popular methods are the debt avalanche and debt snowball.
Organizing Your Finances
By being organized with your finances, you can break out of the debt cycle, ensure you don’t live a pay check to pay check, and have the confidence to live the life you want, maybe that includes PASSIVE INCOME. Remember to take a proactive approach to dealing with your finances, to set budgets and goals relative to your personal circumstances.