How to Overcome Financial Disorganization

Clean Your Financial Closet

Have you ever had a closet or garage that was out of control? It can make you feel anxious or frustrated. You can try to avoid it, but in the back of your mind, it’s there nagging at you. Later, after you’ve tackled it, you feel organized, empowered and efficient.

How do you feel when you take a look at your personal finances? Do you cringe or do you feel at peace? Is your financial closet messy and overflowing or is it shiny and organized?

Financial disorganization is the key differentiator between those who are successful with their finances and those who aren’t. Here are a few things to consider if your financial closet is messy...

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A Clean Financial Closet

Disorganization dramatically increases the chances of getting hit with a penalty fee such as late fees ($26-$39), over-limit fees (~$29), or emergency phone payments ($5-$15). These add up quickly. In 2009, these fees amounted to approximately $19 billion.

The fastest way to blow lots of money on nothing isn’t in Vegas. It’s missing a debt payment. One missed payment can make your APR jump from 15% to nearly 30%.

Missing a few payments can drop your score by as much as 50 points, since 35% of your credit score is determined by how consistently you make your payments. A 50-point difference in a credit score can add 0.6% to you mortgage rate, resulting in $40K more in interest over the life of a $300K mortgage.

Simple Organization

Here are some simple organization techniques:

Set up files for each account: Use little manila folders and label them, one for each account.

Gather your latest statements. Paper statements are the best since people tend not to look at electronic statements as carefully. Review and file them.

Set up a spreadsheet or paper tracking system with a column for the following fields: balance, APR, payment date, minimum payment, amount paid, and expiration date of any intro APRs. Sum each column to get the total amount. Create a separate sheet for each month going forward. Here’s a link: debt-tracking-form.

Create a summary sheet with space for your total debt and total credit card spending at the end of each month.

Know your cash flow. Know your inbound vs. outbound cash flow. You can avoid late fees just by knowing your cash flow.

Once your finances are in order you will find peace and serenity within yourself because you will know that you are on track for getting out of debt.

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