Part 3 – Get Organized

This is the third and final installment of the Financial Deep Clean series.  If you haven’t read Part 1 – De-clutter and Get Rid of Junk or Part 2 – Work from Room-to-Room, go check them out.

After you have completed a deep clean of your house, it is equally important to get organized to stay that way before the house reverts to the mess it was. Deep-cleaning your financial house is no different. It is important to stay on top of your finances and keep a finger on the pulse of your household budget.

Figure Out What You Spend Each Month

You cannot prepare a household budget if you have no idea what you are spending now. If you prepare a budget without having a good idea of what your costs are, you will forever be over or under spending and you will just stop paying attention to your budget altogether.

As an exercise, list every single penny that comes in and out of your household for the next three months.  Every. Single. Penny!

How you go about this can be as simple or as sophisticated as you would like.  You can buy a ledger book from a dollar store, you can use a simple spreadsheet that you’ve designed, or you can use an app on your phone.  Regardless, you need to be able to account for every receipt and disbursement that passes through your bank account and/or wallet.

Daily tracking in the beginning

You can choose how often you want to update your recording system, but at the outset, it should be daily.

If you take $20 cash from the ATM, you need to be able to provide an accounting for that. It is incredibly easy for a $20 bill to disappear without you remembering what it was spent on. Therefore, it will become important to keep receipts and spare change. Just the act of recording your receipts and disbursements by itself will make you a lot more aware of how you are spending your money.

At the end of three months, you should be able to see whether your cash position, including your bank balance(s) and cash & coin in your wallet, increased or decreased. And, you should be able to estimate what you spend monthly on several categories including mortgage/rent, car payments, heat & lights, gas & groceries, to name a few. You are guaranteed to be surprised by at least one line item.

Presuming you didn’t borrow any money in the interim period, if cash went up, then you spent less than you earned. Congratulations! You should start thinking about setting money aside in a savings account. If you had to borrow money or if your cash position went down, you are outspending your earnings and something needs to change.

Build the Budget

Review every category discussed above and determine if there are any outliers in the data – did you get a bonus from work? Was there a three-pay month? Did you have a major repair on your car?

Now ask yourself if there are any changes you can make, adjust for these anomalies, and don’t forget about irregular or annual expenses (ie. car registration, property taxes, etc.).

Lastly, you need to budget to set money aside for a savings plan for items, like new tires or your kids’ education, and a separate emergency fund for when the dishwasher needs replacing or your roof starts leaking. You know, emergencies. Because they happen to everyone.

Now it’s time to build your monthly budget. If you have done everything above, this step should be relatively straightforward. There are excellent tools to help you build a household budget from both the Office of the Superintendent of Bankruptcy Canada and the Financial Consumer Agency of Canada.

Stay Organized

It is pointless to put together a beautifully balanced budget and then never look at it again. Continue to track your income and expenses and compare it to your planned budget regularly. A budget is a working document and should be adjusted thoughtfully.  Again, this can be as simple as a pencil and paper or an app or a spreadsheet. You need to be able to tell in week three of the month if you have spent 75% of the monthly grocery allotment so that you can adjust your spending.

Lastly, if you are married or living with a partner, communicate! Track and watch your spending together. While it is common that one person is “in charge of the money stuff”, it’s important that both are informed and involved with decision making.

Once you have completed a deep-clean on your financial house you must get organized and stay organized.

Performing a deep clean on your financial house is an important task and, in the same way that you should deep clean your house once in a while, the same applies to your ‘financial house’.

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We offer free consultations to review your financial situation and practical debt resolution options. Contact us to discuss your situation over the phone, a video chat, or in person in Saint John, Moncton, Fredericton, Charlottetown, Dartmouth, or Miramichi.