Getting your finances in order is always a good thing; however, most of us don't do it until we're motivated by a life event like an upcoming wedding, the birth of a baby, a divorce, a financial audit, or a natural disaster. Fortunately, getting your finances in order is not a difficult task, especially if you follow these 10 steps.
1. Make a commitment
The first thing that you need to do is to make a commitment to get your finances in order and be ready to follow through.
2. Order a credit report
Most people don't give their credit reports a second thought until they are denied credit. Because your credit history plays such a big role in so many areas of life, credit reports should be reviewed at least once a year. LegalZoom's trusted partner CreditReport.com offers a free 30-day trial: Free Credit Report and Credit Score. Federal legislation also requires the three large credit bureaus to provide free yearly reports. Visit www.annualcreditreport.com.
3. Gather financial paperwork
When you gather your financial paperwork, you should include credit card, phone, and utility bills, bank statements, insurance and mortgage payments, and any other financial debts and obligations that you are required to pay on a monthly or yearly basis. Determine what your financial obligations are so that you can make arrangements to pay down debt and/or reduce your overhead if necessary.
4. Organize financial documents
Once you've gathered all your financial documents, sort them by name and place them into separate file folders labeled with the name of the company and the year. For example, XYZ Utility 2008. Keep tax returns in their own folders and label them the same way: Tax Year 2023and so on.
5. Analyze your insurance coverage
No one likes to think disasters like fires, floods, tornadoes, and hurricanes will strike, but sometimes they do. That's why it's important to make sure you have homeowner's insurance if you own a home, or renter's insurance if you rent (it's inexpensive and well worth it). Remember that flood and disaster coverage aren't always included in regular policies, so talk to your insurance agent to ensure you have the right disaster coverage for where you live.
Life insurance might be offered through your place of employment, but if it's not, consider speaking to your insurance agent to determine whether or not you need it. Life insurance is also a good way to ensure your debts are covered should anything happen to you.
6. Make a will
Making a last will is especially important if you have children; it enables you to name guardians to watch over them. A last will or living trust is also critical if you own significant or complicated assets. You can create a last will at LegalZoom for as little as $69.
7. Create a budget and stick to it
Creating a budget is a critical step in getting your finances in order, and it's not difficult to do. Sticking to it is another matter! In a notebook or spreadsheet, write down all your fixed monthly expenses. Next, write down your other "non-fixed" expenses, such as meals out, entertainment, clothing, and other discretionary purchases. Writing it down and seeing it on paper helps you to understand where your money goes each month—and where you can cut back. Once you've made a budget, you have to stick to it. Every time you buy something, write down the amount and what you bought. Compare your actual spending to your budget to see where you're getting off track. You can also check out budgeting and expense-tracking software like Microsoft Money.
8. Reduce your debt
Another difficult-but-necessary step in getting your finances in order is consolidating and paying down debt. You should pay at least double the minimum payment plus the finance charge every month. Transfer balances to one or two cards with low APRs to help you keep track of credit card debt. Destroy or freeze your other credit cards so you don't use them. Use cash or debit cards instead of credit for all purchases. If you don't have the cash on hand, don't buy it.
9. Set up an emergency fund
We all know the importance of having two to three months of income on hand in case of emergency, but in tight economic times, it can be difficult to do. If you're really short on cash, try putting every five-dollar bill you get into a box, or even emptying all your change into a jar at the end of the day. Tricks like these do work and they will add up over time. Better yet, write yourself a check—even if it's only $25 or $50—every time you get paid and place it in a special account. Another alternative is to take a chunk of money out of your savings and invest it in a Certificate of Deposit (CD) with a penalty for early withdrawal.
10. Safekeeping for financial documents
Finally, real estate deeds, trusts, wills, 401ks, IRAs, and other important financial documents should be kept in a safe place that a trusted friend, attorney, or family member knows about. Also make copies of driver's licenses, passports, and credit cards in case of loss.
Find out more about Personal Finance
Learn more
