Money, money, money money….MONEY!!! Some people got to have it, some people really need it…and some have no idea whether they have it or they need it because they don’t take the time to review their books. “What books??” You ask. Well, whether it’s a book or a spreadsheet or an app on your phone, I’m talking about your finances.
Every year kinda goes the same way when it comes to my finances. I have a pretty strong start with being disciplined and focused, then I eventually lose focus but somehow the bills still get paid, and by the end of the year, things get pretty loosey goosey. I am not aware of balances, I stop telling myself “no” to purchases as much as I should, I start becoming really focused on when I get paid again, and the paycheck-to-paycheck mentality kicks in a bit. Then January rolls around and I force myself to get reacquainted with my finances, and I become focused and disciplined all over again.
So…here we are…it’s January and it’s time to know what’s happening with my finances. It’s time to regain control, see the big picture, know my numbers and dates, and make the promise to myself to be more fiscally responsible than I was last year.
Where to begin: I have a spreadsheet which has been my trusty companion for the last five years or so. I use it to track account balances, financial obligations, and monthly payments. So I pulled that out and got to work. I went account by account, checked balances and limits, minimum payments, and due dates. One page of the spreadsheet contains every debt that I owe for every monthly payment I make. It has the date that those payments are due each month, the current balance of that account, the limit for that account, and the method which I make my monthly payments. I update it for any new accounts and delete any old accounts that no longer apply. I sum this all up and I see where I stand from a total debt perspective. Then I compare that amount to the debt reported on my freecreditreport.com report. (Side note: Freecreditreport.com is a very useful tool. I highly recommend this or some type of credit monitoring service.)
So here’s the spreadsheet template that I use.
After I’ve updated all the accounts on my current payment roster, I go to my other sheet that lays out my monthly perspective. I put in my paycheck dates for the year, the amount of each paycheck, and the bills that I pay each month. This is where I track each time I get a paycheck, and each time I actually make a payment towards my bills. This is also where I become a little lazy because most of my payments are set to be automatically paid. I like that these payments occur behind the scenes and that I do not have to monitor them on a daily basis. I feel like I should stay on top of my monthly payments, but because God invented autopay, I just don’t have the need to monitor it super close.
So…between these two spreadsheets, this is how I go about performing my “State of My Finances” review.
Upon completing my review, here’s what I found out— I kicked ASS this year financially! GO ME! 1) I paid off all credit card accounts except one that I use for vacations and such. 2) My credit score has gone up, up, up despite purchasing a vehicle last year! 3) My monthly utility, cell phone, cable, etc. have all been kept at a satisfactory level. 4) I am spending significantly less than I make. 5) And I have a much healthier surplus at the end of each month. YES! This is what it’s all about!
Doing an annual “State of Your Finances” is an absolute MUST for everyone, and here’s why:
You know where you stand: Every adult should know who they owe, how much they owe, and when they owe it. You need to know whether you need to make changes or stay the course. You need to know whether you can withstand a financial crisis or an unexpected life change. While credit reports are a great way to know this information, sometimes they are wrong. If you haven’t done your own work, you may not realize there are errors, and that can hurt you in the long run. A good example for me is, when I was furloughed for 35 days, and missed nearly three paychecks, my boyfriend was actually surprised that I wasn’t a big ball of stress. That’s because I knew I had savings, I knew I had credit cards that weren’t maxed out, and I knew what sat in my bank account. Granted, it wasn’t a great time, I definitely avoided Target like the plague…but I was able to survive it unscathed.
Knowing your financial status is empowering: Every year when I do my self-audit, I come out of the experience feeling better. When they say knowing is half the battle, that’s legit. You feel empowered to do better, to plot a course, to move to the next step. Or you feel validated in the way you spent money in the previous year. Even in the years when I realize my financial situation was not great, when I was completely under water and overwhelmed, I still completed my finance-check feeling better. I’d rather know than not know. Knowing your starting point helps you determine your goals. Just because things aren’t great doesn’t mean you can’t improve and get to where you want to be. Trust me. I know first-hand, and maybe one day I’ll write about my journey to this point.
Not knowing is stressful: Flying blindly is a bad idea. Not knowing whether you are close to financial ruin or well on your way to financial freedom can cause stress. Playing fast and loose with your finances is never a good thing. Getting to a checkout line and not knowing whether you have $500 or $5 in your account is not cute. Going to dinner with your girls, and having your stomach in knots because you don’t know what the waiter is going to say when he brings your card back…is a horrible position to be in. Remove one source of stress from your life. Know for sure what’s going on. Either way, the money is either in your account or it isn’t. Don’t add to the stress by putting yourself in embarrassing situations just because you don’t want to know your truth.
You can set the course and let go of the wheel: What I’ve learned is that by going over my bills and payments in the beginning of the year, I actually figure out what my plan is for the year, set everything up, and then I don’t think about it. I just let the auto-pay magic happen. Because I know that I’m not the greatest at being disciplined, I set myself up for success from the beginning and then I don’t worry about it. Over the course of the last few years, I always dread this audit, and then realize things are better than where I started. But that’s because I’ve set payments up, I’ve updated when things get allocated based on my pay dates for the year, so I don’t have to constantly monitor and look at things in order for them to get done. Lay out your plan and let it go to work!
You can take advantage of opportunities: Whether it’s planning a trip you swore you didn’t have enough money for, or increasing your contributions to your 401k, knowing definitively where you stand with your finances opens the door to more opportunities. For me, if I have money sitting in the bank, that’s money available for me to spend. But instead, if I allocate it before I see it, then it’s helping me accomplish a goal. I know I’d much rather accomplish a goal than purchase yet another pair of jeans. Let your money help you experience life to its fullest. Don’t let it be the reason you don’t want to get out of bed in the morning. I’ve been there–it’s horrible.
Start your year off right. Don’t hesitate! Know where you stand financially and set yourself up to be in a better position when you review your finances next year. I know you can do it!