New Year’s resolutions get a lot of flack, and for good reason.
No one seems to take them seriously after a month or two, and just about everyone has a friend or family member who commits to a new diet or exercise routine every time January rolls around.
But making important changes can be easier when you attach meaning to them, and the new year is a perfect opportunity for a fresh start. If you’ve been mulling over the idea of making a change, starting on January first carries symbolic weight.
This year, commit to a more organized approach to your finances. Here’s how to do it.
Make a List of Your Accounts
Getting financially organized starts with knowing how much money you have and where it’s located. Make a list of all your accounts in a spreadsheet and include the account number, online username and any other relevant information.
Your list should include:
- Bank accounts
- Retirement accounts
- Brokerage or investment accounts
- Insurance accounts
- Business accounts
Don’t keep your passwords anywhere they could be easily stolen, like a Google document that can be hacked if you don’t log off your account somewhere.
If you’re married, share your account information with your partner so they know where to find everything.
People who are single or divorced should give that information to someone else they trust, ideally the executor of their estate.
Write Down Your Net Worth
Your net worth is the sum total of how much you own versus how much you owe. The figure can be calculated by subtracting all your debts, including mortgage, student loans, auto loans, credit card balances and more from all of your assets, including your total house value, retirement accounts, savings accounts and more.
Track your net worth to see if it’s going up or down. That will give you the easiest snapshot of your current financial situation.
Look Over Your Actual Budget
If you don’t have a budget, starting one should be your next move. There are many schools of thought on the best way to do that, but the important thing is to track and organize your expenses. If you haven’t been tracking your expenses, this process might seem overwhelming or difficult.
I recommend picking three months from the past year and looking over those expenses. Looking at one month’s expenses can be misleading because you might have been really frugal that month or had an unexpected bonus check deposited. Looking through several months will show you larger patterns that might not have been noticeable otherwise.
After getting a basic grasp on how you spend money, you can decide whether or not to make any changes. Just like decluttering your house during spring cleaning, the end of the year is the perfect time to reevaluate your where your money is going. It’s the perfect opportunity to cancel old subscriptions, negotiate lower rates and commit to better spending habits.
Every once in a while, a friend will ask me to help set up up their finances. They might want to know how to contribute to a retirement account or where to save their emergency fund. They’ll usually ask about their spending to saving ratio.
What I’ve found is that most people have more accounts than they realize, like multiple 401ks from previous jobs, several HSA accounts or inactive checking accounts. When I lay out all their accounts in front of them, it’s easy to see why getting organized intimidates them so much.
You’re less likely to keep up with multiple accounts. It’s confusing to remember multiple different websites, passwords, and usernames. That’s when mistakes can happen, like fraudulent charges or unnecessary fees.
For that reason, I recommend consolidating as much as you can without losing any benefits. That means rolling over inactive retirement accounts and combining redundant savings accounts.
You wouldn’t want to roll over your current 401K into your IRA, because you would lose the company match you’re currently getting. You also might prefer having separate savings accounts for your down payment and one for your trip to Europe.
The point is to keep your accounts as organized and concise as possible. You’ll save yourself time and stress in the new year – and beyond.