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Financial Spring Cleaning

office-620822_1920Okay, be honest … are you an organized person … or a messy person?  Do you have a junk drawer that hasn’t been cleaned out in the last ten years?  We all have one of those drawers which is stuffed with miscellaneous junk. Just make sure your finances don’t resemble your junk drawer.

Why is it important to keep your finances well organized? Because we are stewards of the blessings God has given us.  Someday we will be required to provide an accounting of how we fulfilled our role as stewards, and staying organized helps you be a good steward. As it says in 1 Corinthians 4:2: “Moreover it is required in stewards that they be found faithful.”

Being disorganized is harmful to your financial health as it may cause bills to paid late, incurring late fees and additional interest charges and those late payments will hurt your credit score. Being disorganized can cause problems at tax time when you need to have financial information from the previous year available to maximize your deductions. You may make poor financial choices because you do not have a complete financial picture when decision-making time comes around. And overdrawing your bank account can cause hefty overdraft charges.

The first step in getting organized is to create a filing system by breaking your finances into various categories, including bills, various types of insurance, pay stubs, and receipts. Try to keep everything that is similar in one place in date order so you can easily find things. Set up manual or electronic files and give the files specific names that says exactly what the bill is. Keep your bills wherever you normally write checks or pay bills online.

Most bills are due about the same time each month so if you create a monthly checklist you can keep it on your desk, or create a file on your computer and check off each monthly bill as it is paid. This will help you ensure bills are paid on time.  Proverbs 3:27-28: “Do not withhold any goods from the owner when it is in your power to act. Say not to your neighbor, ‘Go, come back tomorrow, and I will give it to you,’ when all the while you have it.”

Note the date and amount paid for your records. Keep the bills until the next bill comes in so you know your payment has been received and processed, then shred the paid bill for privacy and identity theft protection. If you have to talk to anyone who has issued you a bill, note the name of the person, the date and time you talked to them and a brief synopsis of the conversation. This will ensure you have some history in case of disputes.

Another important step in getting organized is to have a regular check up on your net worth – once a quarter or once a year.  Your net worth is calculated by completing a financial statement (A sample Net Worth calculation is on our website: https://compasscatholic.org/participants – under week 7)

A net worth/financial statement basically has 3 pieces – assets, liabilities and the difference between the two. Assets are anything you have that is of value: house; vehicles; bank accounts; investment accounts; retirement accounts; jewelry; furniture; electronics, etc.

Liabilities are any debts you have: mortgage; car loans; student loans; credit card debt; consumer loans; home equity loans; and any past due bills.  Monthly bills that come due and are paid on time are not considered debt, such as the electric or phone bills.  But if these monthly bills are past due, then they are considered debts.

Net Worth is the difference between what you have and what you owe. Subtract the liabilities from the assets and the difference is your net worth.  Your net worth can give you a direction for where to concentrate your efforts. If the net worth is a negative number, then you really need to concentrate on saving and paying off debt.  If your net worth is a positive number, how are you progressing on your strategic savings for college, or a home, or retirement, and if you do have a positive net worth are you also being generous?

Once a year is a good time to review all your bank and credit accounts.  You should not have any open accounts that are inactive as they just clutter your financial portfolio and could impact your credit negatively. Limit the number of bank accounts you have, according to your personal needs. Some people may need just one account whereas others may prefer to have separate accounts for checking, short-term and longer-term savings.  Credit cards should also be limited and paid in full every month.

A budget (spending plan) is the single most important financial tool that helps you put down on just a few pages your income and your spending so you can make better spending decisions, get out of debt quicker, save more and give more.

If you’ve never done a budget before, start by keeping track of everything you spend for 30 days. Organize the 30-day spending into categories so you have a 30-day total for transportation costs, food costs, clothing costs, phone, electricity, etc.  Use the totals in each category from the first 30 days to establish the estimated amount you will spend in those categories in the next 30 days. Then add the two months together for the 60 days of tracking and divide by two for an estimated monthly spending plan. When you get things really organized, set aside an amount each month to cover irregular expenses such as the quarterly auto insurance or the yearly expenses for Christmas or vacations.

Once you get a spending plan pulled together, review it at least once a month so you stay on track. This will help you see where your money is going, which is a vital step in being sure you are spending on those things which have the highest priority for you and your family. The best part about managing your expenses is the visibility of bad habits and the opportunity to change them. Proverbs 21:20 “Precious treasure remains in the house of the wise but the fool consumes it.” – that’s what we do when we are not managing our money God’s way.

These are some tips that will help you stay on top of your bills and accounts, and will lead to greater organization, less spending and, most importantly, an opportunity to be more generous.

Being careful with your finances is being a good steward. Missing bill payments because of lack of organization is the easiest financial problem to fix. You don’t have to use all of these tips, as long as you pick an organizational system that you can stick to every month.

And remember that the best way to get your finances in order is to involve the Lord – “For your heart will always be where your riches are …” Matthew 6:21 tells us that our only riches can be found in the Lord.

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