• 10 Tips to Manage Your Financial Affairs Correctly

    March 13, 2019
  • 1. Collect and Write Down Your Assets and Liabilities

    Assets: Write down everything that has value to you. These include checking, savings, retirement, IRA’s, vehicles, stocks, bonds, annuities, and home equity.

    Liabilities: Write down all of your debt. This includes student loans, mortgage, cars loans, personal loans, credit card balances, and any other debt you might have.

    If you are just getting started organizing your personal finance, using a pen and paper works great. Keep it simple write everything down with a name and dollar amount. Other options include excel spreadsheet or using a free website like Mint.


    2. Calculate Your Net Worth

    Many people believe that calculating your net worth is difficult. In actuality, it’s probably the simplest step in starting or learning to manage your finances. To calculate your net worth subtract your total debt from your total assets (Assets – Debt = Net Worth).

    Again you can do this with a pen and paper, it works great. Excel is another great option because you can easily enter a formula to complete the calculation for you.

    If you are looking to organize your finances digitally, as we do, check out Personal Capital


    3. Create Your Monthly Budget: Income vs. Expenses

    The first 2 steps provide a great overall picture of your personal finance. They show how you are doing financially as a whole, which is very important. Equally as important is understanding your monthly cash flow.

    Income: List all the income you receive in a month. This includes your hourly wage, salary, bonus, side hustles, side business, etc.

    Expenses: Write down all of your monthly expenses. Start with all of your fixed monthly expenses. These include rent, mortgage, insurance, student loan payment, cell phone bill, internet, gym membership, etc. These are the easiest to figure out because they are the same amount each month. Next, write down all of your variable expenses (change from month to month). These include utilities, groceries, discretionary money, donations, gas, etc.

    Some expenses might be difficult to gauge how much they are every month. Look back a few months and take the average. You want to have a very clear picture of your monthly cash flow. Figuring out your cash flow and creating a budget is critical in getting your finances organized.



    Create A Monthly Budget Template

    Download our free budget spreadsheet for Excel or Google Docs. Choose from an Excel budget template or an easy printable PDF budget.

    I am pleased to present a simple and totally free budget spreadsheet that can be used to quickly and easily plan how much you can spend each month.

    Using the spreadsheet is easy. First, gather your paystubs and enter your monthly income. Next, collect a month’s worth of bills and receipts. Enter the monthly amounts in the appropriate categories, estimating any value that fluctuates from month-to-month.

    Once you have entered all the values, the spreadsheet will tell you how much you will have left at the end of the month to save or put towards debt. The spreadsheet will also tell you how close you are to an ideal income allocation. Such allocation models are frequently used by banks and other lenders for determining your financial balance. Feel free to try the spreadsheet today using the download link below.

    The Original Free Budget Spreadsheet (Version 2)

    This spreadsheet for Excel 97-2003 or 2007 automatically calculates how much you have left to spend in your monthly budget categories as you input spending on a calendar-like grid.

    Download for Excel (.xlsx)

    Note: If this file downloads as a .zip instead of .xlsx, try right clicking the link and selecting ‘Save Link As’.

    Download for old versions of Excel 97-2003 (.xls)

    The Really Simple Budget Worksheet

    If you don’t want to spend a lot of time with your budget, sometimes all you need is a quick chart to jot down about what you’ll spend each month. Sound about right? Then this one-page, super-simple worksheet is for you.

    Download as PDF



    4. Calculate Your Overall Cash Flow

    This is also a simple equation. To calculate your monthly cash flow take your income and subtract your expenses (Income – Expenses = Monthly Cash Flow). To think of this in simple terms your cash flow is basically your “money in and money out”.

    Your overall cash flow is probably the most useful tool in your efforts to manage your finances because it gives you a constant checkpoint to see how effective your various financial strategies are. As your income goes up and expenses go down, this calculation will show you concrete proof that you’re moving in the right direction. 


    5. Get a Hold of Your Credit Scores and Reports

    You know your overall net worth (Assets – Liabilities) and your monthly cash flow (Income – Expenses). That’s a great start!

    The next step in organizing your personal finance is getting a hold of your credit score. You have lots of free options here. Companies like Credit Karma will provide you with a free credit score.

    Your credit score is extremely important in getting the very best rates on loans. Having a good credit score can literally save you hundreds of thousands of dollars over your lifetime. Think of your credit score as an insurance policy to lenders.


    6. Evaluate Your Personal Finance


    Now that you have your net worth, cash flow, credit reports, and credits scores it’s time to start evaluating. Having the information is great, but understanding it is a different story. It’s now time to start evaluating your personal finance in detail.

    – Net Worth

    Your goal with your net worth should always be in the positive. If you have more assets than liabilities you have a positive net worth; congrats! If your net worth is negative, it’s a good wake-up call to get your finances in check. Knowledge is power. Now that you know your net worth, set some obtainable goals to increase it.

    – Cash Flow

    Your cash flow should be a positive number, this is very important. If you have a negative cash flow you are bleeding money from your accounts. From time to time, you will have a bad month where your expenses out weight your income. If your goal is financial freedom you can’t let this happen very often.

    Always aim to have a positive cash flow every month. Be sure to include any money you are investing or putting into retirement accounts as an expense. This is money that is not liquid and you will not be able to use in the near future.

    The entire premise of knowing your cash flow is maintaining a budget and grasp on your financial situation. In tracking your expenses you will have a clear picture of what your biggest monthly expenses are. You will also see where you are overspending and be able to adjust, helping you fine tune and better manage finances before things get out of control.

    – Savings (liquid asset)

    Do you have an emergency fund? If you answered “no” then you need to get on it. Life is unpredictable and things are going to happen. Things like car repairs, surgeries, and death’s in the family are going to happen. Having an emergency fund prepares you to deal with those situations financially. The last thing you want to worry about in an emergency is “how am I going to pay for this”.

    How much of an emergency fund you need varies. The typical rule of thumb is at least 3 months of living expenses. Ideally, you would have more than 6 months of living expenses saved up.

    – Credit Report

    Go through your credit reports thoroughly. Understand what is being reported and why. Errors do happen in credit reports and correcting those are important. Contact the credit bureau directly to make them aware of the error so they can get started in correcting it.

    Negative entries on your credit report will stay active for up to 7 years. After the 7 years are up the negative entries will be removed from your credit report.

    – Credit Score

    Compare your credit score to the graph below from Cafe Credit. If your credit score is lower than you like, don’t fret! It’s easier than you may think to increase your credit score to excellent.


    fico credit score range color coded scale


    7. Create Monthly and Yearly Budgets

    Once you have gotten this far you should know exactly where you stand with your personal finance. Now that you know where you are you can start planning on where you want to be.

    This seems to be the hardest step for most people. If you truly want to get your finances organized a budget is a must. A budget is a plan for your money. You either have to tell your money what to do or it will leave rapidly.

    Since you already took a look at a monthly budget in the early steps, expand on it to span the entire year. For example, you know that Christmas happens every year, so make sure that you start saving a “Christmas fund” at least a few months in advance. Add it into the budget for a given month, as applicable, to make purchases you know are coming such as birthday gifts, back-to-school supplies, or even oil changes. 

    Once you’ve set up a recurring but slightly customized budget for each month of the year, you’ve got a chance to see the entire year-at-a-glance. Make a note of things like the total amount needed for those here-and-there birthday gifts, any party costs, etc. As the year moves on you may find yourself able to save for an entire budget item that spans months in a shorter amount of time, freeing up cash in later months to be applied elsewhere. 

    Always remember that budgets should be followed pretty strictly, but they should also have room for change if absolutely necessary. 


    8. Get Motivated


    Ask yourself the honest question “why do you want to organize your finances?” What is your purpose and motivation behind learning more about your personal finance?

    Figure out the real reason why getting your personal finance organized is important to you, such as attaining financial freedom. Once you have your purpose getting motivated will become much easier. Set goals, stick to your plan, and go after it!


    9. Ongoing Review

    After completing steps 1-8 it’s important to continue to review. Set a time each month to check on your finances. If revisions need to be made, make them. Continue to stay informed on what is going on in your financial life.

    Don’t fall back into your old ways after learning your financial situation. Mistakes will be made and that’s okay, get back up and start over again. It might be frustrating at first, but once you get a system in place it’s extremely rewarding.

    It’s also a great habit of doing a thorough review of your financial situation on a yearly basis. Compare your net worth from one year to the next, hopefully, you are seeing it grow. Compare your monthly budget from year to year as well. This is a great way to make sure you are always living under your means.

    During this time of review, it’s always a great idea to also go back through your investment accounts to make sure everything is squared away. 


    10. Relax

    As silly as it may sound, it really is important to stop and take a deep breath once in a while as you’re going through your financial journey. Managing finances can be truly stressful! 

    Don’t forget to stop every so often and take some time out to recharge as needed. It’s totally reasonable to budget for an occasional (read:  infrequent) break, sort of like taking a little “vacation day” from all your financial work. Go see a movie, order takeout, or plan a little weekend getaway. Just make sure you don’t undo all your hard work!


    Final Thoughts on Learning How to Manage Your Money

    We have gotten where we are today by having a clear plan and always reviewing our situation monthly. It’s actually really hard for us to imagine not being financially organized, it’s scary.