Clean Sweep Your Finances in 10 Easy Steps
Financial planner offers tips to get and keep personal finances in order.
Menlo Park, CA (PRWEB) February 1, 2005
WouldnÂ’t it feel wonderful to be one of those lucky homeowners on a TV home-makeover show? Designers, carpenters and organizing experts would descend on your house. Just two days later, youÂ’d be living in a beautifully decorated home, swept free of clutter and half-finished projects.
Now imagine how it would feel to have your finances look as beautiful and orderly as a redecorated home. You would exist in a state of financial peace. You would have money in the bank, with an emergency fund to spare. You would know where you spent every dollar from every paycheck. YouÂ’d have a plan to meet your financial goals, and youÂ’d feel confident about the future.
Unfortunately, few of us are starting 2005 in such financial comfort. Not only do we lack a plan for the future, we donÂ’t even have a grip on the present. What happens to all the cash you take out of the ATM? What are those mutual funds in your 401(k)? Is credit card debt part of your life forever? You know the phone bill is around here somewhere, but you canÂ’t find it Â
Often what stops us from organizing our finances is that it all seems overwhelming – not unlike a home-remodeling project. Where to start when you don’t even know where you are?
Take heart. Like those home improvement shows, you can dramatically improve your finances in just two days, and you don’t need a team of experts and a large budget to do it. What you do need is a real commitment and two days reasonably free of interruptions. The key is to get started. And remember: Don’t get bogged down trying to do each step perfectly. Make “good enough” your motto.
Day One
1. First things first. Write down all of your short - and long-term goals that require money to accomplish. List everything, no matter how big or small. Now prioritize your goals. At first, focus on things you can accomplish sooner than later: set up automatic contributions from your paycheck to a savings account. Use the cash to start building an emergency fund, or pay off your credit card that charges the highest interest rate. Sign up for your 401(k) at work. YouÂ’ll be more motivated to work toward the big goals when youÂ’ve already accomplished some of the smaller ones.
2. Tame the paper tiger. Get all your important paperwork in one place. Losing important documents can be costly in both time and money. Make or buy a filing system, and organize your documents in file drawers or binders. It doesnÂ’t need to be fancy. No matter how much paper has piled up over the years, you can at least get it into one place in some order within two to three hours.
3. Take stock. To measure progress, you have to know where you are today. Make a balance sheet, just like a business has. Go through your now-organized paperwork and list everything you own and everything you owe. The difference between the two is your net worth. As you save more and pay down debts, your net worth will increase. Update it every year.
4. Follow the money. Do you know how youÂ’re spending your money? If you donÂ’t have a system for tracking your spending, get one started. There are good software programs and paper-based methods to help (see below).
5. Tell your money where to go. Look hard at what changes you can make. Now decide how much you’ll spend on everything – from necessities like housing and insurance – to discretionary things like movies, clothes and vacations. Write down how much to spend in each category, and don’t forget savings and non-monthly expenses such as holiday gifts or property taxes. If you have an unexpected expense, use unspent money from a category like entertainment or eating out. Scrimp on everything you can to avoid using a credit card and racking up debt.
Day Two
6. Make a list. Now that youÂ’ve gotten your paperwork in order, summarize your key information into a list. In an emergency, you or your family members may need to get information quickly. Key data includes: Social Security numbers, location of will or trust, location of safe deposit boxes, financial account numbers, health insurance information, logon/passwords for your computer and important websites. The more information, the better. Keep this list somewhere safe and secure, away from your home, and tell trusted family or friends where to find it in case something happens to you.
7. Go on a plastic diet. Review the balance sheet you made yesterday. How much credit card debt is on the liability side? Are you paying down the debt each month or adding to it? If you donÂ’t already pay off your credit cards every month, switch to cash. YouÂ’ll be more careful with your spending if you have to count it out in $1 bills.
8. Protect yourself. Gather your insurance policies – life, health, auto. Given that even a small claim on your home and auto policies can dramatically increase your rates, save your policies for big claims only. Then save money by having high deductibles. Talk to your insurance agent or broker to make sure your liability limits are adequate. Chances are you don’t have enough life insurance. Term life insurance has never been cheaper.
9. If thereÂ’s a will, thereÂ’s a way. You have an estate plan, even if youÂ’ve never had one prepared. Your stateÂ’s laws determine who gets your assets if you die without a will or trust. If you have minor children, the courts will decide who cares for them, unless you have prepared custodial documents. Do you really want to give the state this much power? Your task today: Make an appointment with a qualified estate attorney. If you canÂ’t yet afford a lawyer, find books or software to help you do it yourself in the meantime (see below).
10. Keep up the good work. Mark one or two times a month on your calendar to sit down and review your progress. How close to reality is your spending plan? How have you handled unforeseen expenses? What progress are you making on your goals? If you have a spouse or partner, make sure to meet together.
If a two-day financial clean sweep sounds like two days too many, consider how much time and money financial disarray already cost you. Besides, you work so many days to earn your money, a weekend isnÂ’t much in comparison.
Be assured that thereÂ’s help when you need it. If this clean sweep feels overwhelming, call in the experts. A professional organizer can get you ship-shape faster than you think. When youÂ’re ready to look ahead, see a financial planner for advice. Even if youÂ’re confident that youÂ’re on track to reach your goals, itÂ’s comforting to have that second opinion.
Resources
Filing systems: Homefile Publishing, Financial Planning Organizer Kit, $24.95, http://www. organizerkits. com/index. asp (http://www. organizerkits. com/index. asp). FileSolutions, $29.95, http://www. filesolutions. com (http://www. filesolutions. com). Both available at The Container Store.
Budgeting tools: Software: Quicken, Microsoft Money. Paper-based: The Budget Kit, by Judy Lawrence (Dearborn Trade, $18.95); The Money Tracker, by Judy Lawrence (Dearborn Trade, $19.95). Web-based: Personal Mvelopes, http://www. mvelopes. com (http://www. mvelopes. com).
Financial planning: The Garrett Planning Network, http://www. garrettplanningnetwork. com/index. asp? tohome=yes (http://www. garrettplanningnetwork. com/index. asp? tohome=yes). National Association of Personal Financial Advisors (NAPFA), http://www. napfa. org/index2.htm (http://www. napfa. org/index2.htm). The Financial Planning Association, http://www. fpanet. org/public/index. cfm (http://www. fpanet. org/public/index. cfm).
Wills and trusts: Website: Nolo Press, http://www. nolo. com (http://www. nolo. com). Software: Quicken WillMaker, KiplingerÂ’s Will Power.
Professional organizers: National Association of Professional Organizers, http://www. napo. net (http://www. napo. net).
About Jennifer Cray
Jennifer Cray is a financial planner at InvestorÂ’s Capital Management, an independent financial planning firm located in Menlo Park, California. Jennifer is a member of The Garrett Planning Network, the Financial Planning Association, and a Financial Services Affiliate of NAPFA, the National Association of Personal Financial Advisors.
About The Garrett Planning Network, Inc.
The Garrett Planning Network, Inc. (GPN) is a nationwide network of professional, fee-only financial advisors. GPN members are dedicated to providing competent, objective financial advice to people from all walks of life, on an hourly as-needed basis. There are no account minimums or long-term contracts required. GPN members focus on working with two often overlooked and underserved markets: (1) middle-income individuals and families, and (2) do-it-yourselfers who need or want occasional professional advice or a second opinion. Many people who have previously been turned away or turned off by traditional asset management or financial planning firms with high minimums will be pleased to know that, through The Garrett Planning Network, they now have access to the same quality financial planning and advice once available only to the wealthy. The network has been profiled hundreds of times in major publications, on the Web, radio and television. For two consecutive years, Investment Advisor magazine has named GPN founder, Sheryl Garrett, “one of the top 25 most influential people in the financial planning industry.” For more information, visit www. GarrettPlanningNetwork. com.
Media Contact:
Jennifer Cray, Financial Planner
InvestorÂ’s Capital Management
Phone: (650) 323-4706
Email: jenniferc@feesonly. com
Web: www. feesonly. com
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