Getting our finances in order is not always on the top of our list unless we are forced to get them organized, which might be due to an IRS audit, divorce or the need to gather documentation for a mortgage or other major loan. Busy families, in particular, have a lot on their plates and tend to put their financial life on the back burner. This can lead to mistakes in the budget, poor planning and the loss of important papers.
In the Baltimore area, there are many financial planners and advisors that can help with long-term planning, but for monthly bill paying and keeping important papers organized, it’s a good idea for individuals to create their own system.
With the new year approaching, this is a good time to plan out which financial areas need to be organized. Here are a few tips to get started:
1) Bill paying – Create a list of all of the bills you pay each month, including an average of how much each bill is each month. Note down when the bill is due and how the bill is paid, e.g. personal check, online bill-pay, automatic bank transfer, etc. Also, don’t forget periodic bills, like insurance, water and sewer and taxes. For periodic bills, add up the total for the year and multiply by 12. Save that amount each month so that there are no surprises when the bill is due.
2) Vital records – Do you know where your birth certificate and passport is? If not, it’s time to get those important vital records organized. Birth certificates, passports, social security cards, marriage licenses and death records are all vital records that we need to keep forever. Make a copy, scan a copy (safely) and keep the originals in a safe place.
3) Organize your debt – Sometimes debt can get out of control. Individuals may have debt on several credit cards, including the usual debt many people carry with cars and mortgages. Focus on the credit card debt first and make a plan of how you can reduce it and eventually pay it off. Financial experts often say to take the smallest balance and pay that off first because it helps to build momentum. Others say to pay off the debt with the highest interest rate, which may be the best advice, but may initially feel like it’s going to take forever. Do what makes sense to you, and will give you the most satisfaction.
4) Check your credit record – If you’re planning to apply for a loan for a mortgage, car or other major purchase, it’s a good idea to check your credit record first to make sure there are no mistakes that you’re unaware of. Go to AnnualCreditReport.com to request your free credit reports from Experian, Equifax and TransUnion. Federal law requires that each of these 3 companies provide one free credit report once every 12 months. Visit the Federal Trade Commission website here for more information.
5) Set up an emergency fund – An emergency fund can save the day if there is a sudden loss of income for a period of time or there’s an emergency that requires a large chunk of money. Experts recommend 3-6 months of income. This can take awhile to save, so it’s important to start with whatever you can. To find the extra money, it might mean giving up something small, like a daily trip to the coffee shop coffee and making coffee at home or at the office. Or, carpooling into work a couple of days with a co-worker to save money on gas.
In summary, if you’re more organized with your important papers and bills, and know where your money is, you’re more likely to reach your financial goals.