organizing your finances

Each Monday morning, I plan to post my thoughts on Organizing Your Finances. Through this series, I hope to share a tip or two that address a common problem that many of us face in our daily lives — that of organizing our finances. I’d love to hear your thoughts on this initiative and would love it more if you could share a tip of your own. And, as always, do spread the word if you find this useful.

With D entering my life, I now see the need for creating our “Personal Finances Folder.” In this folder, I want to capture every aspect of our personal finances. Should anything happen, this should be our “Go To” folder. This far, we have kept our finances separate and therefore, to begin with, I want to capture my part of our personal finances in this folder.

Broadly speaking, I want to record information about our:

  • Assets
  • Liabilities
  • Insurances
  • Taxes
  • Financial Goals and
  • Personal Documents

As a first step, I bought one of these expanding folders — they’re perfect for capturing and consolidating your personal finances. I’m also using Google Docs to type-in the information and then printing it out for storing in the folder.

I plan to post each week on how I am tackling each of these categories. Stay tuned.

Now, how about you? Do you already have your Personal Finances Folder up and running? I’d love to hear from you.

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Each Monday morning, I plan to post my thoughts on Organizing Your Finances. Through this series, I hope to share a tip or two that address a common problem that many of us face in our daily lives — that of organizing our finances. I’d love to hear your thoughts on this initiative and would love it more if you could share a tip of your own. And, as always, do spread the word if you find this useful.

Over the past year, we’ve managed to get rid of a significant amount of physical clutter that was lying all around our home. You name it and I’d bet that I had it — somewhere. Minimalism has made our home simpler to manage.

Driving to work, I felt that the same principles could directly be applied to one’s personal finances as well since most of us do have a lot of financial clutter in the form of unused bank accounts, investments we’ve no idea why we invested in, multiple credit cards, etc. Financial clutter tends to distract us from achieving our financial goals and causes much stress.

I’ve had a lot of financial clutter too in the form of old salary accounts that weren’t closed (and then stressing myself out to meet minimum balances in each of those accounts), an endowment life insurance policy that I bought out of personal obligation (and then stopped paying the premiums), a personal credit card from American Express (that came with the corporate one and that I recklessly charged), and such.

I’ve managed to rid myself of most of these. It’s honestly liberating when you get rid of your financial clutter. I now choose each item in my personal finances with due diligence. That said, here’s an acid test that you should subject each financial instrument that you have to.

Each financial instrument that you have as part of your personal finances should financially — not emotionally or otherwise — justify its existence. If it doesn’t, get rid of it.

Do this and I guarantee financial simplicity and peace of mind.

What do you think? How do you get rid of your financial clutter?

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Each Monday morning, I plan to post my thoughts on Organizing Your Finances. Through this series, I hope to share a tip or two that address a common problem that many of us face in our daily lives — that of organizing our finances. I’d love to hear your thoughts on this initiative and would love it more if you could share a tip of your own. And, as always, do spread the word if you find this useful.

In describing how to get a complete picture of your debt, I suggested gathering all of your debt related documents together before working out a debt repayment plan. Recently, while reading the book Deal With Your Debt, I came across the following Debt Repayment Worksheet template (click on the image to access a higher resolution one) and thought that it could help you in your journey towards organizing your finances.

OYF_Debt_Management_Template

Do let me know if you find this useful.

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Each Monday morning, I plan to post my thoughts on Organizing Your Finances. Through this series, I hope to share a tip or two that address a common problem that many of us face in our daily lives — that of organizing our finances. I’d love to hear your thoughts on this initiative and would love it more if you could share a tip of your own. And, as always, do spread the word if you find this useful.

One of the most common mistakes that we make is to not assign a nominee for each of our financial assets especially when this facility is readily available to us. We know the value of assigning a nomination but somehow procrastinate from doing so. And at times, we do assign a nominee for new financial assets that we acquire but forget to do the same for the older ones (I’m a good example).

Given the critical importance of nomination in managing your finances, here’s what you should do today:

  1. Make a list with three columns. Use the headings: Financial Asset, Current Nomination, and New Nomination.
  2. Under Financial Asset, list each of your financial assets (bank accounts, brokerage/trading/investment accounts, certificates of deposit, mutual funds, life insurance, etc.).
  3. Under Current Nomination, against each Financial Asset, write “YES — [Nominee 's Name] if that asset already has a nomination registered or “NO — N/A” if it doesn’t.
  4. Under New Nomination, against each Financial Asset,
    • If Current Nomination has a “YES,” either retain the nominee or change the nominee.
    • If Current Nomination has a “NO,” add a nominee.
  5. Highlight the Financial Asset for each change or addition done in Step 4.

An example:

GEO_Nomination

For each highlighted Financial Asset, obtain the necessary nomination forms, fill them up, and submit them. A couple of days later, verify that the nomination has been successfully registered.

What do you think? Do you have all your nominations in place?

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Each Monday morning, I plan to post my thoughts on Organizing Your Finances. Through this series, I hope to share a tip or two that address a common problem that many of us face in our daily lives — that of organizing our finances. I’d love to hear your thoughts on this initiative and would love it more if you could share a tip of your own. And, as always, do spread the word if you find this useful.

Just a couple of years back, I had a good number of bank accounts — a couple that were opened as part of employment and others that I had opened on the spur of the moment. The result: too many accounts, statements, minimum balances, phone numbers, user names, passwords, transaction passwords, and PINs (HPINs, IPINs, and TPINs) to keep track of.

More important, I had no unified view of my finances.

One fine day, I called it quits (I’d called customer care and the automated system desperately wanted to know my 6-digit TPIN) and went on an account closing spree (you can read about it here and here). I now have just two bank accounts — one that gives me my unified view and the other for disaster recovery. This system seems to work quite well for me.

That said, here’s what you should do today.

First, on a sheet of paper, make a list of all bank accounts that you have. Next, each account on this list should financially justify its existence (example: an account from which your car loan EMIs are being deducted, an account from which you’re paying your bills, etc.). Any account that doesn’t pass this test needs to go. Close it at the earliest you can. Next see if you can consolidate the remaining accounts (example: paying both EMIs and bills from the same account).

At the end of this exercise, you should have the minimal set of accounts from which you can conduct your finances.

What do you think? How many accounts do you need to conduct your finances?

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Each Monday morning, I plan to post my thoughts on Organizing Your Finances. Through this series, I hope to share a tip or two that address a common problem that many of us face in our daily lives — that of organizing our finances. I’d love to hear your thoughts on this initiative and would love it more if you could share a tip of your own. And, as always, do spread the word if you find this useful.

Last week’s exercise involved identifying your annual expenses. Once you have this list written down, the next logical step is to chart a plan for meeting these expenses.

In the past, I’ve sometimes been blindsided by my annual expenses and I always used to think “Wouldn’t it be wonderful if I could save regularly so that when an annual expense is due the money is already there in my account?” For a long time, however, I didn’t actually do anything about it.

One day, I set up a cash flow model for my annual expenses using Microsoft Excel (you can download a template here) and arrived at a sum that I should save each month. I set aside this sum every month from my salary. Whenever an expense is due, I simply issue a check from this saved amount. Result: no rummaging for cash; no credit card usage; zero stress.

Given my stress-free experiences with this method, I encourage you to first identify and then save regularly for your annual expenses. Psychologically, you can simply treat this monthly sum as another EMI payment.

What do you think? Do you follow a different method?

PS: Let me know if you’re having any difficulty in understanding my template.

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Each Monday morning, I plan to post my thoughts on Organizing Your Finances. Through this series, I hope to share a tip or two that address a common problem that many of us face in our daily lives — that of organizing our finances. I’d love to hear your thoughts on this initiative and would love it more if you could share a tip of your own. And, as always, do spread the word if you find this useful.

Often, we’re so caught up with our day to day expenses, that we forget to think about those annual ones — the ones that suddenly creep up from nowhere and when money’s really tight in your wallet. Generally speaking, any expense that you pay for once a year counts as an annual expense. Typical examples are insurance payments, property tax payments, health-club memberships, maintenance contracts, and such.

We tend to lose focus on such expenses because they are spread out through the year. For instance, you could be paying your vehicle insurance in January, your property tax in May, your health insurance in September and so on. Often, when it’s time to pay for such an expense, we find ourselves rummaging for the required cash. Worse, we simply give up and charge these expenses on our credit cards.

But you can do better. Do this exercise today.

Make a list of all your annual expenses — list each expense, the expense date, and the expense amount.

Example:

1. Car Insurance, May 01, 2010, Rs 10,000

2. Gym Membership, June 15, 2010, Rs 15,000

I was shocked when I totaled my annual expenses. How about you?

Next up: An annual expenses savings template. Stay tuned.

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Each Monday morning, I plan to post my thoughts on Organizing Your Finances. Through this series, I hope to share a tip or two that address a common problem that many of us face in our daily lives — that of organizing our finances. I’d love to hear your thoughts on this initiative and would love it more if you could share a tip of your own. And, as always, do spread the word if you find this useful.

I have written before on the concept of having a single source of truth for your finances. The basic idea here requires you to have:

A savings account from which you conduct transactions across the four core financial categories — income, expenses, investments, and savings — each month. At the end of each month, you review this account’s statement and you have a clear idea of your financial dealings.

I’ve been following this system for quite some time now and have found that it works very well. I now have a clear picture of where my money is coming in from and where my money is going out to. Further with this system in place, I also know what my free cash flow is each month. I simply calculate my free cash flow using the formula:

Free Cash Flow = Free Cash Flow (brought forward from the previous month) + Income – Expenses – Investments (for medium and long-term goals) – Savings (for short-term goals)

I can now use this free cash for anything that I want to — since all my expenses and goals have been monetarily accounted for. It’s honestly liberating to see a positive number here.

How about you? Do you have such a system in place? Do you know what your free cash flow is?

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Each Monday morning, I plan to post my thoughts on Organizing Your Finances. Through this series, I hope to share a tip or two that address a common problem that many of us face in our daily lives — that of organizing our finances. I’d love to hear your thoughts on this initiative and would love it more if you could share a tip of your own. And, as always, do spread the word if you find this useful.

As I have written before, when you file your income tax returns, you’re building a history about yourself — that you exist and earn. Your annual income tax returns are therefore one of the most important documents that you need to keep organized and available on hand.

They’re useful in quite a number of situations. For example:

  • When you apply for a loan from a financial institution
  • When you apply for a visa
  • When you need to answer an income tax audit

Given their significance, here’s what you should do to organize your income tax returns:

  1. Gather all your income tax returns.
  2. Sort them by year — in descending order with the most recent one on top and the earliest one at the bottom.
  3. File them together.
  4. Label this file “Income Tax Returns.”
  5. Subsequent returns go directly to the top of this file.

And in case you can’t find one or more of your returns, here’s what you could do.

What do you think? Do you already have your returns organized? How did you go about it? Share your thoughts in the comments.

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Each Monday morning, I plan to post my thoughts on Organizing Your Finances. Through this series, I hope to share a tip or two that address a common problem that many of us face in our daily lives — that of organizing our finances. I’d love to hear your thoughts on this initiative and would love it more if you could share a tip of your own. And, as always, do spread the word if you find this useful.

I thought I’d begin this series with one financial aspect that’s common to most of us in today’s world — financial debt. As a first step towards organizing your finances, you need to first know what you owe. Since financial debt can arise from various sources, here’s what you should do to get a complete picture of your debt:

  • If you have credit card debt, gather the latest statement for each card.
  • If you have unsecured loans (personal loans, education loans, and such from financial institutions), gather the loan amortization schedule for each such loan.
  • If you have secured loans (home loans, vehicle loans, and such from financial institutions), gather the loan amortization schedule for each such loan.
  • If you’ve taken a loan from friends and family, make a note of each such loan on separate sheets of paper.
  • If you’ve signed a guarantee for someone else’s liabilities, make a note of each such guarantee on separate sheets of paper. Though you’re not making the payments right now, you need to be aware of what you’ve guaranteed.

Next, file all the above documents together and name this file “Debts and Liabilities.” This will give you a complete picture of what you owe — to others. You can then take the next step — preparing a debt repayment plan.

What about you? Do you already have a complete picture of your debt?

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