There are a number of ways to get your house in order: you can clean clutter from your desk, finish leftover home improvement projects, or sweep the front walk. You can buy a nice new calendar and hang it on your fridge to stay organized, or resolve to throw out those pb&j crusts from under your son's bed (trust, those of us with kids won't judge you).
There is another essential way to “get your house in order”, and that pertains to personal finance. Your financial house is as important, if not more important, than your physical house; if your financial house isn’t in order, you might not have a physical house much longer!
This article is not intended to frighten but to inform: financial housekeeping is as important as doing the dishes, making the beds, vacuuming, laundry and dusting. Well, the first four…some of us are allergic to dusting.
So how do you get your financial house in order, and keep it that way?
First and foremost, make a comprehensive list of your “fixed” expenses. This includes mortgage/rent, car payments if you have them, utilities, phones (land line and cell), water bill, cable, garbage, internet, etc. Some of these amounts may vary from month to month, but they are usually expenses you need to live from day to day. Total them up.
Then, get some idea of your variable expenses. This includes credit cards, food, gas, medical payments, car repairs, tax payments, miscellaneous such as birthday gifts, clothes, impulse spending, etc. Total them up.
Gettin’ a bit hot in here, isn’t it…
Don’t despair. You can’t make significant improvements or get your financial house in order if you don’t take stock of what's in front of you. Think about the last time you cleaned out a messy, packed closet; when you started pulling stuff out it looked much worse - papers, junk and clothes strewn everywhere - how did it all fit in that closet??? Yet, as you discarded outdated items, donated others, straightened up, filed, and organized, you were astonished by how beautiful, neat and clean your closet became.
This is how it works financially, so don’t be daunted. Last week I reviewed our supermarket purchases over a 30-day period and was unpleasantly surprised by the high cost. Normally thrifty (read: cheap), I had allowed my spending on food to get out of hand. By making an honest assessment of my spending, I eliminated frivolous purchases, refocused on meals, resolved to buy only items on sale, set a realistic budget, and saved money.
Through the itemization of my fixed and variable expenses, I also got a good handle on how much money we need to bring in each month. With this we were in better shape, since we eliminated car payments by paying off all of our cars, have low credit card debt, and have a low mortgage payment. For those who feel they are over their heads, however, you have options. If you have four car payments (some people do!) and don’t need four cars, sell a car! Good old common sense is very useful. Use the money to pay down debt, or pay off one of the cars; you will also see your insurance bill go down. If your mortgage is too high, consider refinancing options, review your home insurance, or downsize. In order to make changes you must take stock.
Consider also those “fixed” expenses: do you need cell phones and a land line, 974 channels on your cable, mega high speed internet, a shopping spree every month, 30 minute mental health showers, expensive gifts for people you barely know? Review, reduce and - better yet - eliminate.
Finally, and most importantly, be honest with yourself regarding your purchasing and spending. I cannot impress enough how often I speak with people who express concern over their finances and in the same breath justify a $4.00 a day Starbucks latte. Let’s be real: you want a latte. I want a latte. We all want a latte! But - at 80 bucks a month, $960 a year - do we need a latte??? Be honest about what you absolutely positively need; this includes eating at restaurants, cable choices, smartphones, jewelry, video games, new anything. Cut to the bone, and work your way up.
Once your spending matches your income, you can breathe a little easier. For a while, go without extras, pay off debt, and then start saving. Live simply, cut restaurant eating, learn to make a nice pasta dish. Plan meals and reinvent leftovers. Treat yourself only when you’ve reached your financial goals. The latte will be much sweeter when you can actually afford it.
The trick to getting your house in order, financial and otherwise, is to recognize the mess. Otherwise the piles will only get higher and messier.
Which reminds me, I have laundry to do.
Sharon L. Cece © 2012