Simplify and Organize Your Finances: Part 2

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In Part 1 of this series, we looked at our finances at the high-level. We took a snapshot of our current financial picture, and examined where our money is going. Then, we identified our priorities going forward, and made sure we were protected with appropriate insurance and estate planning documents.

In Part 2, we’re going to be organizing the details. Remember that the goal is to simplify. We want to create a plan that allows us to meet our financial goals, and then set it up to operate on autopilot as much as possible.

1. Simplify and consolidate accounts

Remember that list of assets and liabilities from Part 1? Do you have more accounts than you need? If you do, it’s making your financial life unnecessarily complicated, and you’re probably expending unnecessary mental energy keeping track of each account.

Consolidate your bank accounts, if it makes sense to do so. Do the same with your retirement accounts, if applicable. The result will be less paperwork, potentially less bank fees, and less transferring money between accounts.

2. Make a budget

Very few people love budgeting, but if you want to organize your finances it’s an unavoidable part of the process. I like to make budgeting as simple as possible.

First, identify your fixed expenses, the ones that can’t be changed. These are things like rent or mortgage, property taxes, utilities, insurance payments, and car or loan payments. I also include childcare in this category, because it’s a big expense for us and it’s not going to change.

Then, from the amount leftover, budget for your priorities. These are the big goals that you identified in Part 1 – things like debt repayment, building an emergency fund, retirement, the kids’ education, and building additional savings. These are your big-picture financial goals, so budget for them before you fill in your variable expenses.

Finally, fill in your variable expenses – food, gas, clothing, personal care, kids’ activities, entertainment, sports, subscriptions, etc. You should have a good idea what you’re spending in each category based on the work you did in Part 1. Was that amount where you’d like it to be, or is there room for improvement?

Look for opportunities to reduce expenses. Are you using your gym membership? Can you cancel any of your subscription services? Can you reduce your cable and internet service or switch providers to reduce your costs? Can you save money by paying annually instead of monthly for any of your expenses?

It may be that you have to adjust the amounts that you’ve allocated to your financial priorities to make everything balance. After all, this is an expensive stage of life, and as much as we would like to be able to fully fund our retirement accounts and max out our children’s education funds, we also need to feed and clothe our families. Make sure you’re being honest with yourself – are you adjusting the amount you’re allocating to your priorities because of a need or because of a want. If it’s a want, can you forego it, or reduce it?

A trick I like to use is budgeting conservatively. I don’t include “extra” income in our budget – like bonuses, extra paycheque months (I’m paid biweekly), or the increased paycheques we get at the end of the year once we’ve maxed out certain payroll deductions. We budget to live on the smaller amount, and then when we receive extra income, we throw it at our financial priorities.

3. Automate what you can

Once you have a realistic budget that you can stick to, you want to automate everything you can.

First, make funding your financial priorities automatic. Set up automatic recurring transfers to the appropriate accounts the day after you’re paid. If that money is never available to you, you can’t spend it, and there’s a good chance you won’t miss it. We all know we should be doing this – how many times have you heard the saying, “pay yourself first”? But, for me at least, if it’s not automatic, there’s a good chance it’s not going to happen.

Put your bills on auto pay as well. If automatic payments aren’t available, use recurring calendar reminders to help you remember due dates for each bill. Even if your bills are paid automatically, it’s a good idea to set up a calendar reminder to review the statements.

4. Schedule check-ins

Finally, schedule regular check-ins, at least quarterly. Set them up as recurring calendar reminders.

This is an opportunity to make sure your plan is working for you. Are you on track with your financial goals? Is your budget realistic, or does it need to be adjusted? Do you have extra money that you can put towards to your financial goals?

I hope that you find some of the strategies in this series helpful, and implementing them helps make your life a little bit simpler!