Would you do something that would provide you peace of mind, save you time, enable you to make wiser and more knowledgeable decisions, and help you better adjust to changes in your life?
It’s a crucial first step in any financial strategy to get financially organized because it makes all of this possible. Gaining organization enables you to see the wider picture, see the connections between all of your financial and life decisions, and manage those decisions with more assurance and clarity.
And while though getting financially organized can seem like a difficult undertaking, we have three easy steps to guide you through the process.
Organizing Your Financial Landscape is the first step.
Let’s start by creating a checklist of the important areas you need to arrange for success.
Earnings – List all of your sources of income, including labor, investment income, rental income, and income from a pension (Social Security or pensions). Before taking into account any work-related deductions (from perks and retirement savings) and taxes, the objective is to determine what you earn in a particular year.
Benefits from your employment – Compile a list of all the advantages you receive from your work. This covers employer retirement plans as well as group benefits including health, disability, and life insurance. An yearly report or webpage where you can access your elections should be provided by your firm.
Taxes – Keep a copy of your most current tax returns on hand at all times. You should consider your sources of income, the deductions you are claiming (itemized vs. standard deductions), any tax credits you are eligible for, and the size of your refund or shortfall. Knowing your marginal tax rate, or the highest rate you pay, is also useful for planning.
List all of your bank accounts, including credit union accounts, including checking, savings, high yield savings, and certificates of deposit (CDs). Observe the bank, the kind of account, and any potential interest you may be receiving.
Borrowing and debt – Begin by making a list of all of your current bills, such as credit card balances, mortgages, auto loans, and student loans, among others. You should note who you owe money to, how much you owe, the interest rate, your monthly payment, and the date of your last payment.
Estate planning and insurance – For insurance, make a list of all your policies. This covers insurance for your life, disability, health, and possessions like your car and home. Make a list of all the documents you presently own for estate planning. The majority of the time, this includes your will, financial power of attorney, and healthcare power of attorney. Make a note of any trusts you may have.
List all of your investment accounts that you have. Include any taxable investment accounts you may have in addition to your personal retirement accounts, such as IRAs and Roth IRAs, as well as any corporate retirement funds (such as 401(k) plans). You might even integrate accounts for your children, such as an education savings plan. Record the kind of account, the balance, and the contents of each one (this is good for reviewing your overall investment strategy).
Your home or other real estate, any vehicles you may have, your businesses, and other possessions you value are included in the remaining portion of your assets (wedding ring, artwork, collectibles). Keep an eye on the asset’s worth.
Planning for the Future: How Life Milestones Impact the Bigger Picture (Step #2)
A pond’s surface will ripple in all directions when you throw a rock into it. Any choice you make in life has the potential to have an effect on your financial situation.
Consider a few objectives you wish to accomplish or a forthcoming milestone. How would achieving that objective or reaching that milestone impact the subjects we just covered?
- Personal: What are your plans for the upcoming year? In three to five years, how about that? Are you about to retire, getting married, having a baby, buying a house, or changing jobs?
- Professional: Do you anticipate receiving a raise or promotion? opening a new position? Did you get stock-based compensation? Do you intend to launch a company or a side business?
- Financially: Are you about to pay off some debt or reach your emergency fund goal? Do you need to modify your savings strategy for retirement? How about a strategy for your children’s education? After making a significant purchase (such a car or house), do you need to change your savings?
You will be more able to recognize how each decision you make in life and about your finances affects everything if you are organized. Additionally, it will enable you to change your plan as you go.
Step #3: Consider the Big Picture and Your Position
Choose one component of your plan to organize first. It could feel daunting to attempt to handle everything at once. To evaluate your overall financial well-being as you go through each area, pose the following questions to yourself.
- How frequently do you review the list? When was the last time you looked at each item?
- How do you feel about where you are now or the advancement you have made?
- Are there any adjustments you want to make now or in preparation for a future life milestone?
- Do you wish to learn more about the possible best course of action for your overall plan?
What did you learn? Most people discover that there is a lot to go through and organize, and that’s okay. It’s important to keep in mind that the purpose of this exercise is to help you achieve clarity, reduce stress, and assist you in making wise decisions that will support the life you want to lead. And simply getting organized can make all of this possible.