Believe it or not, staying organized is one of the most helpful things you can do to get those finances in order. Below, we’ll break down a few ways you can get organized today so that you can begin to feel more prepared, less overwhelmed, and infinitely more in control.
Step 1: Create a home for all of your financial documents
You don’t have to be in school to use all of those helpful school supplies. Take advantage of this Back to School season and stock up on folders, a binder, or a filing cabinet. If you don’t already have a filing cabinet (or similar storage method), then pick one up this week! You can find a small, fully functional filing cabinet for under $50 at Target that won’t break your budget or steal too much room in your home.
Once you have the cabinet, take the time to create a file for everything: Receipts, User Manuals for your appliances, Home/Mortgage documents, Taxes, Personal Information, Insurance/Will, Bills, School projects/report cards for your kids, Investment documents, list of all accounts, savings trackers, etc.
Organizing all of your important documents in one easy to find location will help you feel more settled, improve your sense of personal security, and may very likely make it much easier to have everything you need in order to file your taxes in the future.
Step 2: Create a list of all of your accounts
It’s easy to lose track of all of the various accounts you might have, especially if you have children or others whose accounts you manage. Take ten to fifteen minutes and create a list of all of your different accounts, their current balances, associated interest rates (if applicable), and monthly payment amounts (if applicable).
Some accounts to record:
Investments:
- Health Savings Accounts
- Real Estate
- General Brokerage accounts
- Insurance
Assets:
- Checking accounts
- Savings accounts
- Certificates of Deposit (CDs)
- Cash
- Money Market accounts
Retirement:
- 401(k)/403(b)
- Pension
- Annuity
- IRA (Roth or Traditional)
Debt/Liabilities:
- Mortgage
- Student Loans
- Credit Card/Consumer Debt
- Medical Bills
- Auto loans
- Home Equity Loans
- Personal Loan/Lines of Credit
- Other Debts
Step 3: Understand your credit score
In order to improve your score, you first need to KNOW your score. You are entitled to a free credit report every twelve months from each of the three main credit bureaus: Experian, Equifax, and TransUnion. Log on to one of the credit bureaus to find out where you stand. When viewing your score, be on the lookout for any suspicious activity. If your score seems wildly out of line with your expectations, do a double (or even tripe) check of the report. If anything seems suspicious, contact the credit agency to make an inquiry and make sure you are not a victim of identify theft or any other fraud.
Step 4: Calculate your net worth
Using your list of assets, investments, retirement accounts, and debts/liabilities that you made earlier, take a few moments to calculate your net worth.
Your net-worth provides a picture of your financial health. It is your total financial value after assessing the value of everything you OWN: your assets (i.e. investments, residence, real estate, etc.), subtracted by everything you OWE: your liabilities (i.e. consumer debt, outstanding mortgage, student loans, etc.). Every financial decision should be made with the end goal of increasing your net-worth.
So …how can you calculate your net-worth?
Start by listing all of your assets and their known values. Note* to determine the current value of your home or automobile, it can be helpful to consult Zillow or Kelley Blue Book to determine the fair market value.
What if I calculate my net-worth and it’s negative?
If you find yourself with a negative net-worth, don’t panic! This doesn’t necessarily mean that your financial health is in a terrible spot, but it does indicate that your liabilities outweigh your assets. If you still have student loans and other large amounts of consumer debt, this makes sense. You likely haven’t been able to afford accumulating enough assets or eliminate enough debt to erase those financial liabilities from your personal balance sheet yet. So…you might then be wondering:
How can I improve my net-worth?
Building your net-worth is the name of the game. Every decision you make should be made with the intention of aiming to reduce your liabilities, responsibly accumulate assets, and ultimately, increase your net-worth. The healthiest way to improve your net-worth is to eliminate unnecessary expenses, and aim to reduce your debt. For most people, credit card debt is the one of the larger liabilities they must deal with. By making a conscious effort to control your spending and set up a strategic savings plan, you may find you’re able to make significant progress in eliminating those stressful liabilities. Conversely, you can also increase your net-worth by purchasing worthwhile assets or responsibly investing in your future. While you may expend resources (namely cash) to purchase that first house or make contributions towards your retirement plans, your net-worth will increase if those assets appreciate in value. Ultimately, improving your net-worth is a balancing act of responsibly investing and aggressively eliminating unnecessary liabilities.
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