Financial House Cleaning: How to Organize Your Finances

Just like a disorganized kitchen cabinet, having messy finances can be stressful—it can also make it harder to accomplish your goals. You don’t have to wait for the new year to make resolutions—you can reorganize your financial house whenever you like and enjoy the perks going forward. When you clean up and organize your finances the way you would a cluttered cabinet, you’ll be more likely to stick to your budget, reduce debt, save money, and meet your short- and long-term goals.

A deep dive into your money might help you find extra cash to reduce debt. You could find it’s more possible than you thought to build up your emergency fund or hit a financial milestone, like buying a home or helping your kids pay for college.   

Let’s take a look at some money tips and tricks to get you started creating a financial plan so you can learn about budgeting, automation, and more. 

Gather All Your Financial Information 

If you’ve never made a budget before, don’t worry—it’s not intimidating when you break it down into a series of small steps. 

• First, get organized and gather information 

• List your financial accounts—for example, checking, savings, retirement, credit cards, car loan, mortgage

• Next, add the balances for these accounts so you can update them over time

It might help to make your list digital with a link to each account. Whenever you want to assess your finances, it’s easy to find and log into your accounts so you can: 

• Check your savings and retirement balances

• Track progress on paying down loans and credit cards

Create a Budget (or Tweak Your Current One)

Got your financial accounts organized? Time to create a budget. A solid budget could give you more control and make it easier to manage your spending, reduce debt, track your goals, and build up a cushion for unexpected expenses. 

If you’ve budgeted before and struggled to stick to it, no shame—the reason for the many different methods is that no one budget type works for everyone. We’ll walk you through some options so you can find one that suits you. 

Zero-based budgeting 

This budget has you giving every dollar a job. All of your expenses, including fun money and savings, use up everything you earn in a month. Zero-based budgeting could be good for you if you want to put more money toward a specific goal, like reducing debt. Let’s say in a given month, you earn $4,000, and find you’ve only spent $3,980. You’d send that remaining $20 to your credit card or personal loan. Zero-based budget helps you to be intentional with every dollar.  

Envelope system

If you have expenses that change month to month, like groceries, envelope budgeting can impose some predictability onto your spending. 

Here’s how the envelope method works. You decide how much you want to spend on an expense every month. You could estimate using previous months spending or work with a fixed amount for a car or mortgage payment.

Example: If you budget $500 for groceries, you place that amount into an envelope. Every time you buy groceries, you use money from that envelope. 

All of your money goes into envelopes, so if you run short in one category, you have to choose which other category to take it from. If you have any money left over from one category, you can roll it over to the following month’s budget or use it to reduce debt or save. 

You don’t have to use actual cash and physical envelopes, although you could for some categories, like groceries or meals out. You could also use multiple checking accounts or savings buckets—sub-accounts within your savings account—for different expenses.  

50/30/20 rule

The 50/30/20 rule is a simplified method to allocate money for your needs, wants, and savings goals. Based on your after-tax income, 50% goes to your needs and essentials, 30% to wants, and 20% to your savings. 

The 50/30/20 rule works best for someone with a predictable income.

The percentages aren’t set in stone. Depending on your income, saving 20% could be overly optimistic. Maybe you live in an expensive area, and your essential costs eat up 60% or 70% of your salary. The numbers might shift to 70/20/10. 

How do you choose a budgeting method?

Consider your needs and personality. If you want a budget with a lot of precision and control, a zero-based budget could be perfect. If you’re more casual and would rather not nickel-and-dime yourself every month, a modified version of the 50/30/20 rule could work. Once you’ve covered your expenses and put some money into savings, you’re free to spend the remaining 20% however you like. 

You can combine methods. For example, you might spend $200 a month on a passion project or hobby and have a single cash envelope for that expense. Then, use zero-based budgeting to assign a job for the rest of your money.  

A budgeting app is a great way to build a budget that works for you, and you can find tons of free and paid options. Most apps let you link to your financial accounts so you get an accurate read of your spending. Some good ones are:

• Monarch

• YNAB (You Need a Budget)

• Achieve MoLO

Track Your Spending and Monitor Progress

Budgeting apps help you create a budget, and they also help you stay on track. You can make changes or even try a new app. Apps are fun, but they might not be right for everyone. You might feel more comfortable budgeting with an old-school spreadsheet or a spiral notebook and a pen. Just remember to compare your expenses to your income to make sure you’re meeting your goals and covering all the bills. 

Check in regularly with your budget. It doesn’t have to be every day. You could circle a weekly or biweekly date on your calendar to compare your spending to what you budgeted. For some people, looking at the numbers every payday is a good tactic. 

You can course-correct if you notice your spending for a variable expense like groceries or entertainment is getting too close to its monthly limit. Plan some pantry or freezer meals for the rest of the month or stream a movie at home instead of going out this weekend. And consider adding a money-saving app to your financial management routine.

If spending more than you budget is starting to look like a trend, you may need increase the monthly amount for that category. For example, food is more expensive than ever. More breathing room in the budget for groceries could bring some peace of mind and give you a more accurate view of your spending.

Automate Your Financial Systems

If you really want to make money management easier and even relatively pain free, consider automating what you can. Automating your finances mainly benefits you in two areas:

• Saving money

• Paying bills

Automating works well if you have reliable, consistent income. If you live paycheck to paycheck and frequently run out of money, this approach may not be right for you. An unexpected overdraft could lead to fees and a domino effect of missed payments. 

Many of your bills can likely be set to autopay. It's typically an option for your mortgage, car loan, credit cards, and utilities. Once you enroll, most companies contact you after the payment. You’ll rarely need to check in to make sure a bill was paid. No need to worry about mailing a check or making the payment. Autopay is a timesaver that could also save on late fees if you occasionally pay late. Late payments may also ding your credit score, so you’ll be saving yourself that headache too. 

You can also automate your savings and investment transfers. Set up transfers soon after payday to reduce the chance of accidentally spending all the money. Auto transfers take the legwork out of saving, and you could end up with more money in the bank. 

Set and Track Your Financial Goals

Organizing your finances could help you reach your goals. 

Let’s say you want to buy a car in six months and a house in three years. With a budget plan and a solid sense of your finances, you could make it happen. And if anything changes along the way, like a job change or a new regular expense, you can adjust when necessary. 

You plan to trade in your current car, and online resources show you how much you might get. You want to budget an additional $2,000 for the down payment, so you decide to save $333 a month to get there. You set up an automatic transfer from checking to savings, and come new car day in six months, the money is ready for you. 

Saving for a home is a bigger project. You’ll need enough money to cover the following: 

• Down payment 

• Home inspection

• Appraisal

• Movers

• Closing costs 

• Miscellaneous  

You plan on a relatively low FHA down payment and figure you need $26,500. 

For most people, this would be a lofty goal to reach in three years. If you can commit to putting aside $736 a month, you’d hit your target amount. If you can count on an annual work bonus and any windfalls that come your way, you might have some months where you don’t have to put aside as much. 

Check Your Health Insurance

Your health insurance is typically a large regular expense, so while you’re doing some financial house-cleaning, give it a solid check in. Also, insurers frequently change their networks. For instance, you wouldn’t want to visit your regular doctor, only to discover that they‘re no longer in network. Here are some factors to pay attention to:

• How much are your premiums, deductibles, and copays?

• Which doctors are in your network?

• What services are and are not covered?

Before open enrollment at the end of the year, review your options for new coverage. Don’t cancel your plan to save money without choosing a replacement. Forgoing health insurance can lead to high, out-of-pocket medical costs that could seriously disrupt your savings and financial goals.

Consider Your Housing

Chances are your rent or mortgage is your largest monthly expense. If you’re struggling financially, downsizing your living situation could free up some cash flow and help clean up this part of your financial life. Having too much house is more common than you might think. You’re not stuck with it.

If you’re a homeowner, you may want to consider a less expensive property with a lower mortgage, property taxes, and insurance premiums. A home sale could bring fewer monthly expenses and increased cash flow to use toward other goals like paying off debt or saving for emergencies. 

As a renter, it’s a little easier to decide to relocate, but you might have to wait until your lease ends.

If moving isn’t a possibility, you might consider renting out part of your home. You might have a spare bedroom, basement, or garage that could bring in extra cash.

Fill Out Your W-4 Tax Form Correctly

One way to clean up your finances is to take a good look at your taxes. If you’ve landed a new job, your employer will ask you to fill out a W-4 form so they know how much to withhold from your paycheck. Use these tips to make sure you fill out your W-4 thoroughly and correctly. You can also update this form. 

• Consider other jobs and your spouse’s job. If you hold more than one job or your spouse is employed, use the IRS Withholding Estimator to figure out how much to withhold. Enter this amount on line 4(c).

• Claim dependents. Dependents are children or others who live with you and depend on you financially. If you have dependents, make sure you claim them on your form. This can help you determine your eligibility for the Child Tax Credit and other credits.

• Withhold additional taxes if necessary. The W-4 will ask you if you’d like to withhold additional taxes from your paycheck. If you have a side hustle or any other type of 1099 income, withholding extra money could save you from a large tax bill.

Review Childcare Expenses

Childcare is a major expense for many families. Here are some ways to save money and make a plan for your kids to receive the best care. 

• Speak to your employer. Your employer may have childcare assistance programs or offer discounts on care. If they don’t, they may offer the option to work early or late hours so you can care for your children during the day.

• Shop around for childcare centers. Some childcare centers offer sibling discounts or payment plans. They may also consider your income and offer a more affordable rate. 

• Consider Dependent Care FSA Accounts. If you’re eligible for a Dependent Care FSA Account, you can use your pre-tax dollars on child care expenses. Find out if your employer offers this perk.

• Think about nanny or babysitter sharing. Nanny or babysitter sharing is when two or more families share a nanny or sitter to reduce childcare expenses. If you know other parents in the same boat, you may want to band together. Paying one nanny to watch three children generally doesn’t cost as much as paying three separate nannies.

Take Control of Your Debt

Facing your debt head on is the first step toward creating the kind of life you deserve. So take a deep breath, and using the list of financial accounts you made to create your budget, add up everything you owe. While you’re at it, take note of the interest rate and whether the debt is unsecured or unsecured. Unsecured debts are credit cards or personal loans. Secured loans are guaranteed by collateral, like your car for an auto loan.  

If you’re not struggling financially, you might be able to DIY your debt payoff. Either the debt snowball or debt avalanche method could help you laser-focus on debt payoff and send money strategically. The debt snowball might be more psychologically satisfying, but the debt avalanche could save you a little money on interest. Both are effective, so consider which would be easier for you to follow. 

If you want to simplify debt payoff and save on interest, debt consolidation might be right for you. You’d replace multiple unsecured debts (like credit cards) with a single loan, like a personal loan, hopefully with a lower interest rate. Then you get to send in just one payment a month and you get a set payoff timeline. Avoid adding new debt to your credit cards after you pay them off with a debt consolidation loan. Otherwise, you could end up in even more debt.  

If you’re struggling with money and have unsecured balances that are too high to repay relative to your income and other expenses, it might be time to consider debt relief. Debt settlement means getting free of debt for less than you owe, and it involves negotiating with your creditors to accept less. Anyone can negotiate their own debts. If you don’t want to, you also have the option of working with a debt settlement company. Whatever option you choose, the best time to get started is now. 

Build Your Emergency Fund

Building an emergency fund is one of the kindest things you’ll do for your future self. Having extra cash in the bank for unplanned bills can help you avoid going into debt to pay them and let you sleep better at night, knowing you are armed against life’s unpredictability. 

If you’re paying off debt, you might have trouble finding money to save, and that’s okay. Set a reasonable goal for yourself, like $1,000. An extra grand in the bank could probably help you through plenty of jams, such as an unexpected vet bill or a car repair. 

Decide what you can comfortably set aside each month: 

• $50 a month gets you to to your goal in 20 months

• $100 a month gets you there in 10 months

Even if you save less and set aside a total of $500, every bit helps. 

Work your way up to three to six months’ worth of cash in the bank. If it takes you longer to get there, that’s perfectly fine. That might sound like an impossibly huge balance, but it’s what will get you through most temporary financial setbacks. It feels really good to have the money in the bank when emergencies come up. Work on giving yourself that gift of peace.

Keep your money in a high-yield savings account, preferably with an online bank, to earn interest on your saved cash. Online banks pay a lot more than most big name national banks. When you need to pay a bill, you can transfer the money to your checking account. 

Review and Update Regularly

Your financial situation will probably evolve over time. You might change jobs, become a homeowner, or welcome a new baby into your family. This is why it’s so important to review your finances and make updates. 

It’s a good idea to review your budget monthly, and check in on your bank accounts more often (perhaps weekly). Regular financial reviews could make it easier to navigate mundane life changes, like higher inflation. If it’s been a while since you logged into your budgeting app or read through your bank statements, take the time to do so. 

You might discover that your grocery spending has been creeping up, and you now need to budget $600 a month for food instead of $550. If your budget is already established, it shouldn’t be too much of a headache to update spending categories. If you open a new credit card account or take out an auto loan, don’t forget to add these accounts to your budgeting app. 

Good Financial Organization Can Relieve Money Stress

Creating a budget, making a debt payoff plan, and staying on top of all the financial pieces of your life can take some time, but it’ll be time well spent when you find yourself sleeping better and feeling ready to tackle the future. Get started today.