7 Steps to organize your finances


If you’re like most people, you’re probably not where you want to be financially. Before you can figure out what the real problem is, you have to get organized. There is power in knowing!


But to organize your finances manually, follow these 8 steps.


1. Write down your assets and liabilities


Assets: List all bank accounts (checking, savings, etc.), retirement accounts, equity in your home(s), vehicles, and stocks/bonds/annuities/etc.


Liabilities: List all of your debts, including your mortgage, student loans, car loans, other loans, credit cards, and any all other debt.


You can do this on a simple piece of paper of in a spreadsheet. It doesn’t need to be complicated. Just list the name of the asset or liability and next to the name list the value.


2. Calculate your net worth


Calculate your net worth by subtracting your total debt from your total assets (Assets – Debt = Net Worth).


Again, this can be done just by taking what you wrote down in step one and doing a little math. A spreadsheet can do this for you if you use formulas. Take your total debts and subtract them from your total assets.


3. Record your income and expenses


Steps 1 and 2 give you a picture of your overall financial health. They show you how you’re doing financially as a whole. This is really important to know. Equally as important (but different) is your monthly cash flow. To calculate this, use your income and expenses (like you did with your assets and liabilities above).


Income: List any income you receive, such as your salary, any additional income from stocks/bonds, and any income from side jobs or sales.


Expenses: List your total monthly expenses. Look back at the last three months and take the average of what you spend, or you can calculate your spending for the year and divide by twelve months. This will spread out spending evenly for the months where spending is higher (eg: December for the holidays).


In this step, you’re essentially creating a budget, but for the sole purpose of knowing where you stand financially (not for the purpose of creating a plan for the future).


4. Calculate your cash flow


Calculate your monthly cash flow by subtracting your total expenses from your total income (Income – Expenses = Monthly Cash Flow). Think of cash flow as “money in and money out”.


5. Evaluate:


Once you have your net worth, cash flow, credit reports  in front of you, you’re well on your way to knowing exactly where you stand financially. Now, you need to evaluate this information.


Net worth


If you have more assets than liabilities, you have a positive net worth. If your net worth is lower than you want it to be, set a goal to increase it. Knowing your net worth is the first step to changing it (and your net worth is really important).


Cash flow


Your cash flow should be a positive number. When calculating your cash flow, be sure to include the amount of money you put into savings as an expense. Also, make sure to consider your credit card debt in your cash flow. If you have a positive cash flow but you use your credit card to make up the difference and carry a credit card balance, then you are living beyond your means. The point here is to get an idea of whether you’re overspending, underspending, or somewhere in the middle. Once you know what your cash flow looks like, you can decide for yourself how to make adjustments and create a plan to achieve your financial dreams.


Savings (liquid)


When you’re looking at your cash flow, look at your cash reserves (compare yourself to the savings / debt ratios for young adults). It varies depending on your circumstances how much of an emergency fund that you should have, but no matter what you should have one. At a minimum, you should have 6 months of living expenses saved, and ideally, 10 months. Why? Because unexpected things happen all the time, and while they’re never easy to deal with, they’re a lot easier when you don’t have to worry about how to pay for it (I talk about savings and debt ratios more in this post).


6. Create monthly and yearly budgets


After you have evaluated where you are right now, you can make a plan to take you where you want to go. The first step to change your finances is to create a budget (use my 6-step guide to creating a budget). A budget is the framework for finances; it’s the boundaries you set for yourself. If you’re going to commit to a budget, then think about using budget templates to get started. This will help you set your cash flow at a level that will help you increase your net worth and accomplish financial goals.


7. Review, Revise, and Repeat


Once you have completed steps 1-7, you can create a schedule for yourself where you “check in” and review your finances, revise anything that needs changed, and stay up to date with your numbers and reports.


It’s important to stay on top of your finances and know where you stand financially all of the time. An easy way to do that is to follow these steps every year. By using a yearly budget, you’ll be able to compare your yearly spending and watch your net worth and cash flow increase (hopefully)!


Then the Recap


I don’t know where I’d be if my money wasn’t organized! You can use the steps above to track your finances manually, and you can track them digitally by using a free online service from Personal Capital, which is what I use (and love).