FinanceGrrl

1. Open your eyes to your finances.

Don’t live in denial. If you have no idea about your finances you must start at the beginning and get yourself organized. If you have files all set up and pay your bills on time but don’t know your net worth, figure it out. You need to know you numbers.

2. Open your mail.

You might be rich (or poor). Some people leave checks unopened for months - but more often it’s bills. If you’re not opening your mail, chances are that you’re afraid to. Some people don’t want to know how bad their debt is, but you need to know where you stand in order to get ahead. If you get your statements electronically, you must get in the habit of printing or saving them. Online statements are the perfect excuse for ignoring you finances. It’s gotta stop.

3. Do your banking online.

Even though we’re not the biggest fans of online statements while you’re getting a handle on your finances, paying your bills online is always a smart option. If you’re reading this, you have an internet connection so you have no excuse not to. You can even do it on your mobile phone these days. Online banking is safe and it keeps you organized. If you’re on a tight budget, online bill pay buys you time compared to using snail mail. You will know exactly when the money is posted to your bill, and when the money comes out of your account. Just put the links to your banks, credit cards, stockbroker, and whatever else makes up your financial life into your bookmarks.

4. Pay yourself first.

This is a phrase that’s been around forever, and what it means is every time you get paid, aim to put 10% away for savings as if it were a bill. Literally, pay YOURSELF first and then pay everyone else. 10% is the goa, but if you need to start with 5% it’s better to do less than none at all.

5. Stop spending money you don’t have.

Credit cards are someone else’s money. If you use them, you are a debtor. That new variable rate mortgage? You’re a debtor. Your car loans? You’re a debtor. From now on, resolve to only spend money you actually have. It makes all financial decisions easy. You either have the money, or you can’t afford it. And as you pay off your debt, use those “payments” to add to your savings. So instead of a $400 a month car payment, you could be saving $400 for emergencies, retirement, a house, etc.

6. Protect yourself and your investments.

Make sure you have adequate health insurance. Protect your home and posessions with renter’s insurance. Have the right level of car insurance. A major catastrophe could wipe out all your savings.

7. Understand your cash flow.

People are afraid of budgets so we call it a cash flow. If you can understand how the amount of money you are bringing home (not how much you “earn” - how much you take home) compares to the amount of money you are spending, then you can make adjustments to the flow and channel more towards Getting Ahead. If you spend more then you earn you MUST commit yourself to making more money. Don’t forget about expenses that show up less frequently than monthly, like vacations, gifts, car repairs, etc.

8. Make more money.

You are smart and capable. Figure out how to make money in your free time doing what you love so it doesn’t feel like a second job. Only you can figure out how to do this, but you can do it. If you can’t do that, commit yourself to working harder at your job and getting a raise. The only way to get more money, is to earn more money.

9. Make your money work.

Please don’t keep all your money in your checking account. This doesn’t necessarily mean you need to dive into stocks, bonds and mutual funds. There are savings accounts out there right now offering over 5% interest. A simple rule of thumb is that if you have over $10,000 and no short term goals for it, it’s time to invest in the stock market. Historically, the stock market has averaged 10% every year. Of course, this fluctuates - but everyone knows that 10% is twice as much as 5%

10. Start your retirement fund.

NOW. It is not too late, but the sooner the better. The miracle of compound interest only works if you give it time. We have no idea if Social Security will be around in the next 40 years (odds are, it won’t) so we will need to pay for our own retirement. Most people will ned 70% of their income in retirement. If you retire at age 65 and live to 95 that’s 30 years. If you average even $60,000 a year income over your lifetime, you will need $45,000 per year in retirement. Times 30 years - that’s $1,350,000. Freaky? BUT, if you can save $5,000 per year for the next 35 years at 8% you will retire with over $860,000. Now, considering the maximum allowable for a 401k is $15,000 per year - if you can manage that much (don’t forget about company matches!) you can have $1.7 million in 30 years.

It’s not a budget. Budgets make people run screaming from the room. But it is essential to understand the difference between what you earn (take home - not gross) and what you spend.

If you’ve been through the exercise described in this post about the FinanceGrrl Bill Pay System, you’ve taken the first step to identifying your own cash flow. In short, you need to write on a calendar the week before each of your bills are paid. Add to this calendar the dates when you receive your paychecks, and you’re off and running.

After one full month of recording your bills on a calendar, you’ve already created a tool to analyze your cash flow. The visual effect of looking at your monthly bills in one place is powerful. It also helps to add to the calendar other steady financial transactions, such as when you get paid and how much you take home (net).

Do you notice any patterns? Are your bills evenly distributed throughout the month, or are they bunched up near the beginning or the end? If you are feeling a squeeze on your bank account during certain times of the month it may be because your bills are not evenly distributed. In this example the last week of a month is a bear - $1250 in expenses alone for that week. Compared to the week prior, when only $65 worth of bills are due, the third week can really take a toll on a budget.
If you are unbalanced, try calling the people you are paying (”payees”). Many companies, especially credit cards, loans and insurance companies will allow you to change your due dates at least once. But some only allow one change so be sure you’ve really looked to see when you need to move a bill.

Those pesky bills. They come each and every month and sometimes it just seems impossible to keep on top of all of them. The more they pile up, the less likely you are to want to do anything. As long as you have a system in place for organization (see other article), you are ready to maintain that organization as bills arrive.

FinanceGrrl is proud of the system it has developed over the years for its ease and simplicity, and we’re confident that if you apply these techniques you will not fear the yellow envelope again. If you are already in the habit of paying all of your bills immediately upon their arrival each and every time, you probably aren’t reading this… but if you are, pat yourself on the back. We’re super impressed. However, your cash flow analysis can still benefit from using the calendar system (described below) to mark when you pay your bills.

Let’s get started:

Step One: Create your TO BE PAID folder

This folder lives in the front of your system, be it a File Cabinet or File Box. It should be easily accessible. You will use it often. It will hold your bills after they arrive and before they are paid. Take out a colored file folder and Knight Thee your TO BE PAID folder.

Now – here’s how it’s used.

Step Two: What to do when a bill arrives

• Open and toss everything you don’t need. What do you need to keep? Really, all that’s useful is the actual bill. Toss all of those ads; shred any page of a bill that has your account number on it, but no real bill information; and if you pay your bills online, toss the return envelope too.

• Locate the “Due Date” for that bill

• On your CALENDAR, locate the date one week before the bill’s due date and write the name of the bill and the amount due on that day. For example, if your $46 water bill has a due date of the 20th, you would find one week prior on the calendar - or the 13th - and write “Water Bill – $46

So, what if your bill’s “due date” falls on a weekend? It’s always best to err on the safe side. If you bill is due on a Saturday, Sunday or Holiday, go to the closest work date before (usually a Friday) and use that as your unofficial “due date.” For example, Memorial day is Monday, May 31 and that’s the day your bill is due. Go to the first previous work day, which would be Friday, May 28 and that is your new due date. Go to one week prior, Friday, May 21, and that’s the day to mark on your calendar and pay your bill. Better safe than sorry.

• As necessary, reconcile the statements with your receipts. Statements that will be reconciled are primarily bank statements, credit card bills, and investments. Details on How To Reconcile are in another article – don’t sweat it right now

• File the bill in your “TO BE PAID” folder

Step Three: When a bill’s pay date arrives (using the example above, today is now the 13th of the month)

• Look at your calendar and notice that you have to pay a bill today

• Take the bill out of the TO BE PAID folder

• Make your payment [Online bill pay is a dream. You gotta do it. It saves time and money (no more running out of stamps)]

• Write directly on the bill the Date of Payment, Amount Paid, and any confirmation number given (if paid online)

• Record the transaction in your check registry or other tracking program (details on this step are in another article)

• File the bill in it’s own file folder in the current year’s accordion folder

There’s no shortcuts here, getting organized is the essential first step to getting ahead (and then rich). You can’t keep more money if you don’t know what you already have. The good news is that its not that hard.

Organization creates the solid foundation upon which you will build your financial life. Getting yourself organized today will save time and stress tomorrow.

Finding documents will be a snap. Tracking bills and spending habits will be at your fingertips. Maintaining your financial life will be much easier.

This is a three step process:

1. Get a handle on your current situation
2. Determine what to keep and why, and also what to throw away
3. Create your system (a.k.a. “put it all away”)