Financial Organization: Where to Start

Something we think about every day but refuse to think critically about: our personal finances.  We want to bury our heads in the sand and grind, and hope that what comes in takes care of what goes out.  But for most, this leads to pain and fear.

It may be difficult for some people to ask for help with it, too.  This is our money, this is our life’s work, we don’t want others to know we aren’t 100% secure in that!  Well, many people actually aren’t secure with it. It comes from a place of not knowing where to start, or even simpler, where to look.

Zoom Out: Money Is Simpler Than It Feels

Just take the first step.  Like packing for vacation, you don't have all seven nights perfectly laid out when you grab them from the closet.  You start with your least ripped pair of socks, and do that seven times, then your favorite shirts, then your pants, shoes, etc…  The same goes for your personal finances.  You aren’t going to have your inflows and outflows perfected just by thinking about it.

When you actually look at the numbers, it becomes a solvable equation, not the mystery most feel it is. This section is about mindset: you’re not fixing everything today, you’re just understanding the game.

Simply put, it is your household income minus your household outflows. 

For example, this could be a Husband who brings home $1600 every 2 weeks after taxes or net, a mortgage of $1500, a truck payment of $400 a month, and $1500 in monthly spending on groceries, dining out, entertainment, clothing, insurance, etc.  Expenses in this example total $3,400.  If you’re onto me already, you’d see that the husband's income is only $3,200 per month, with a -$200 difference.

Find the Leaks: Where Is Your Money Actually Going?

This is where awareness of spending kicks in.  Many of my readers will look at the truck payment and say, "Get rid of the debt!"  I agree, but not so fast.  They don’t have any extra money each month to pay off the debt quite yet.  This points to a spending issue.

If you’re new to this, break your spending into categories you’ll recognize:

• Fixed: mortgage, car payments, student loans

• Variable: groceries, gas

• Lifestyle: eating out, shopping, subscriptions, Amazon

Most of us think we know where our money goes—we don’t until we see it written down. This is often the “aha” moment.

Psychological tip!  And here is the fun part: ensuring you and your partner have an open line of communication on this.  It is VERY difficult to adjust spending when you’re accustomed to that lifestyle.  It takes grit and discipline from both spouses to get it done.

Build Your Snapshot: Put It All in One Place

Great!  So how do I put pen to paper?  Here is a simple system that has worked for my wife and me:

• Open a spreadsheet (like Google Sheets, which is free)

• List all income sources at the top, then your number to the right

  • May need to look at your pay stubs and multiple gross income times 26 pay periods, for example

• List every expense below, then those numbers to the right as negatives, and in the same column as your income number

  • May need to look at a mortgage statement, bank statement, and so forth to see itemized expenses

  • Accuracy is important, but round if need be

• Type in “=Sum(*the column on the right*)” and drag down to capture the income and expense numbers

This will show you the excess/deficit and give you a real number. The goal here is clarity, not perfection.  This single snapshot is more powerful than months of guessing.

Picture this: The couple from earlier sits down, goes through the exercise, and sees that $300 a month has been going toward unnecessary clothing.  If this couple agrees to only spending $50 a month in this area now instead of $300 (giving them $250 more dollars a month), the household is out of $200 in the red, into $50 in the green, and can start attacking their truck loan with the excess.

Pretty cool, right?

Hint: Try Dave Ramsey’s envelope method if you need a strategy to execute this!

Face the Result: Your Number Tells the Truth

Clarity creates momentum.  There is a motto in life that “nothing changes if nothing changes”.  There HAS to be work put in to improve your current situation.  And if you’re scared to mess something up, that is okay!  Speak to one of our financial advisors or financial coaches to help you through your journey.  We offer complimentary consultations to get to know you, your family, and your situation.

If you genuinely feel that you have it all taken care of, I would still recommend meeting.  Many people DO have it figured out, and HAVE done a phenomenal job in their life.  If we, as advisors and coaches, can identify your blind spots and nudge you in a small direction toward total optimization, it may still be worth an hour of your time.