It's time to get your finances organized!
If you don't have your finances organized yet now is a great time to get started. If you have already them organized, great job! This is a great time to review things.
Note: If you have a significant other, do this challenge with them.
Organizing your finances means:
- Organizing your bank accounts, financial and insurance records
- Creating a money management system aka your budget using a spreadsheet or an app
- Setting up automation
So let's talk through the details.
Organizing your bank accounts, financial and insurance records
1. Bank Accounts
Ideally, you should have the following accounts in place (the actual number of accounts is a personal choice):
- Checking account for bill payments
- Emergency savings account
- Other goals savings account
- Retirement investment account
- Non-retirement investment account
- Business savings (if you are an aspiring or current entrepreneur)
2. Financial Records
Your financial records (whether physical or electronic) should be stored in a safe place like a home safe or a password protected folder on your computer and may include:
- Social security cards
- Insurance policies
- Investment details
- Tax returns
- Loan documents
(Non-financial records that you can organize would include diplomas, passports etc)
3. Insurance Records
Review your insurance policies to make sure you have the right type of coverage for your life scenario. At a minimum, your coverage should include:
- Auto Insurance
- Health Insurance
- Home or rental insurance
- Life insurance
- Personal article insurance (e.g. engagement rings etc)
- Disability insurance
Wondering how long you should keep your financial records?
Records to keep permanently / forever
- Birth certificates / Adoption paperwork
- Death certificates
- Marriage certificates
- Records of paid off mortgages on housing, land and other property
- IRA contribution statements for non-deductible contributions to prove that you paid taxes
Records to keep for things that are active
- Insurance documents
- Retirement plan contributions
- Equity / stock records
- Brokerage statements
- Home improvement records
- Property tax records
- Ongoing debt repayments
- Records for items associated to active warranties
- Records for items that have not exceeded their return dates
Records to keep for at least 7 years
- Tax returns
- Tax related records e.g. alimony payments, charitable contributions etc
Records to keep at least 3 years
- Cancelled insurance policies
- Records of property sales e.g. investments and real estates
- Paid medical bills
- Any documentation that you need for capital gains tax or to support deductions on your tax returns
Records to keep at least 1 year
- Cancelled checks
- Paycheck records
- Bill payment records
- Bank statements
Your money management system aka your budget
If you don't already have a budget in place, you need one.
Contrary to what people might say about budgets, they are designed to help you win. The goal of your budget is to help you managing your spending/expenses against your income. In other words, it is your roadmap to your financial success.
There are a ton of apps like Mint, YNAB (You need a budget app) etc to help you or you can use a simple spreadsheet to track your income, your monthly bills and your daily living expenses.
In order to be successful with budgeting though, it's important to create a new one at the beginning of every single month (as no two months are exactly the same) and track your spending against your budget daily or weekly to ensure you stay on track.
P.S. We'll be getting more into budgeting in a few weeks.
Automating your finances
Automating your finances can make it so much easier for you to manage your money because you don't have to remember to do anything, it get's one automatically. When it comes to setting up your automations, there are two main ways to do it.
Option 1: Sign up for automatic debits from the creditor or service provider you owe a bill to each month.
This means your creditor or service provider will automatically deduct their payment from your bank account. You will have to set this up directly with them. This can also do this for your savings and investments.
Option 2: Setup bill pay with your bank.
With this option, your bank will issue the payment directly to your creditor or service provider on your behalf. This is great if you have a services that does not have an automatic or online payment option. You'll have provide your bank with specific details of how to make the payments i.e. account numbers, addresses etc and allow enough time for your payments to be sent and received by their due dates.
FYI - Automation best practice
It’s very important that you are aware of your due dates and any changes to your bills. As good practice plan to check your account statements every month in advance of the automatic bill payment date. Set a calendar reminder a couple times a month to review your bills and review your budget.
Your challenge this week is to use the downloadable checklist on this page as a guide to help you get your finances organized or review what you currently have in place.
I've also included a budget worksheet so you can take a stab at setting up your budget. Not to worry we will revisit budgeting in a few weeks.
P.S. Don't forget to share your progress in the Facebook group!
It's week 2 of The 26 week savings challenge!
This week, your savings deposit amount is $7.00
(If you've been consistent with your deposits, this week's deposit will bring your balance to $10!)
- Make your transfer.
- Check off this week's amount on your savings challenge schedule (You can download it below if you haven't already).
- Share your progress in the Facebook group!
Note: This challenge will be on-going throughout this accountability program in addition to your other weekly challenges.
P.S. If you haven't already downloaded your 26 savings tracker you can download it below!