Getting organized is such a hot topic right now, a Wall Street Journal article on decluttering books cluttering our bookshelves was front-page news earlier this month. Annual print sales of books on organizing nearly doubled in the past year, as authors chased one of the hottest trends and the popularity of leading guru Marie Kondo. Who doesn’t want a life organized around things that spark joy after all?
Organizing our finances to spark joy is trending as well, as a quick search for say “Kondo finances” shows. Many of us have been sold so many financial products — without a dream-focused plan to make sense of it all — that financial clutter has become the norm. And this can be a big distraction.
Early last summer, we presented a webinar on organizing finances as part of a series to help educate retirement plan participants on steps they can take to prioritize their dreams in every aspect of their financial lives. Let’s walk through a really simple version of the process we use to help clients gather and organize their financial information.
Identity living expense data
One of the first things to identify is your living expenses. Whether you are trying to figure out what resources you have available to put toward your goals or how much it’s going to take to support the lifestyle you want in retirement, the importance of understanding your expenses cannot be overemphasized. Often times we get asked, “How much do I need to retire?” The answer is, however much you are going to spend.
Many people don’t really know how much they spend or exactly what they spend it on, and when they go through this exercise it’s eye opening. Now it is easier than ever to get this information. One quick way to get started is to use the expense worksheet which can be downloaded from the attachments tab of our webinar. Then you can login to your accounts online, and add up what you spend in each category.
Identity other essential data to gather
How do we know what information is important to gather? To help us identify and then group our financial data together, we use an essential documents checklist. Our checklist is pretty comprehensive so it should help you make sure you aren’t missing anything. The full version is included in the attachments tab.
This may seem like a lot to tackle, and if all you want to do is create quick budget to figure out your monthly cash flow, then you don’t have to go through this whole thing. Just complete the expense worksheet and then go through your last couple of paystubs.
Format expense data into monthly budget
Once we’ve got all of our expenses defined and our documents organized, we want to try to format all of that stuff into some meaningful information. There are a lot of ways to do it, but one of the simplest is probably to use a pre-formatted monthly budgeting spreadsheet such as the one provided on our webinar. We like this one because it not only allows you to create a projected budget, but it’s formatted so you can come back and compare actual results to what you expected to happen.
A budget is a fantastic example of taking data and turning it into information. By taking all of the figures from my expense worksheet and combining those with the numbers from my paystub, I now I know what my monthly cash flow really looks like. Get ready for joy to be sparked!
Format data into usable information
All of the documents from our checklist contain financial data that we need to get the full picture. We use a simple organizer template to format some of that data. This document, which you can download, has sections for assets, liabilities, insurance coverage, etc. And it gives us a way to take that huge stack of paper we got when went through the documents checklist, and then condense that down into a concise and usable format.
Whether you are trying to determine if you can qualify for a mortgage or figure out if you have enough insurance coverage to take care of your family if something bad happens to you, it becomes much easier to evaluate those things when you extract the important bits out of your financial documents and put them into a format like this one.
By now, some folks are probably feeling pretty overwhelmed by the idea of having to do all of this, and we get it. The fact is DIY financial planning isn’t for everyone. But even if you eventually decide that you want to get help from a financial planner, you are still going to have to set goals for yourself and you are going to have to gather and provide a bunch of financial information so the planner can do the work.
So if you make it a point to get your finances organized, you will be in a much stronger position to make forward progress. We encourage you to watch our webinar on organizing your finances and complete the exercises. As the Journal article concluded, simple low-cost approaches to getting organized are bigger than ever because our lives are more complicated than ever — and too many products do the opposite.
In that spirit, we’re also happy to make the goal-setting and financial organizing website we use with our private wealth clients available to retirement plan participants at no cost to help them jumpstart their financial planning.
To get started, simply complete our brief goal-setting exercise, and request a quick consultation to set-up your financial organizing site.