In part 1 of this series on disorganised finances we looked at the importance of paying attention to your personal finances and how mindfulness is the ideal tool to help you make this shift.
Once you are paying attention you become aware of the reality of the situation you are in you will probably find several issues that need addressing. These could include:
- A history of disorganisation around your finances;
- Disparity between income and expenditure;
- Chronic debt issues that you’ve ignored;
- You have been under-earning in your career; and
- Relationship issues around money behaviour and beliefs.
These are all complex and multi-faceted challenges that need separate strategies and time to address properly.
They are all issues that Financial Mindfulness looks at regularly both here and in the content within the app.
In part 2 of this series on disorganised finances we take a step back to try and address some fundamentals you’ll need to improve your situation.
We run through some of the golden rules for returning disorganised finances to an organised state and then look at the ‘fatal flaws’ for our hopes of staying organised in the future.
These guidelines have been provided as suggestions by some Financial Mindfulness’s highly experienced experts.
Time to face reality
You’ve presumably read this far because you know there’s a problem with your finances so you’ve already made progress.
Well done on that step and your willingness to face up to problems.
The first issue to face up to is debt: a pattern of being in debt often creates financial stress.
We need to get real around debt – as quickly as possible.
Not all debt is bad of course – if it is debt incurred to build a positive long-term goal or as a solid investment, it might be useful.
The problem occurs when we begin to accumulate multiple debts and ignore the red flags around those.
So we need to identify and detail all debts, seek help – urgently if need be – and build a plan to reduce those debts.
Maintaining a mindful approach to money will help us stay in reality about money – and this needs to be our new default: being in reality about money every day, every week.
At Financial Mindfulness we define being mindful about finances as being aware and paying attention to your finances, and that may mean seeking help.
Get your mindset and motivation right
To become organised, you need to see being organised as an important thing to do, says Hamish Ferguson, a director of Vision Property and Finance.
This means connecting on a daily basis to your purpose around money. You’ll need that motivation to sustain changes in your habits and behaviours
It’s also crucial know your underlying mindset.
One of the most persistent and pernicious reasons our financial goals fall away, we lose motivation, or we never seem to get ahead is our mindset.
“We always have more options than we often realise but if we have a negative mindset, or scarcity mindset, we’re not likely to recognise or see the opportunities that might be right in front of us,” says money behavioural coach Lea Clothier.
Our core beliefs about money can be very deep-seated. Uncovering them and developing a more positive outlook on money may take extra support, for example from a financial therapist.
Mr Ferguson, suggests says one way to help unlock our real mindset is to write a list of the benefits of not being disorganised and share it with someone you are prepared to be accountable to.
Keep revisiting this on your journey towards becoming better organised.
Set some positive financial goals
Mr Ferguson, part of the Financial Mindfulness team, suggests setting some achievable goals around your finances is important.
“These should be goals that would help you feel good about your circumstances,” he says.
Examples might be building savings of 2 months’ worth of expenses, or paying off a credit card and allocating the money towards savings or a buffer.
What happens if we’ve set a goal and we break promises to ourselves and a goal suddenly looks unachievable?
What is the first thing to do when we ‘fall off’ our goals and they suddenly appear unrealistic?
With goals related to money, it’s essential to do a little self-examination to stop any negative patterns taking hold that might lead to financial stress. These patterns might include compulsive spending as a coping strategy.
Firstly, it’s important try not to abandon a goal just because it didn’t work out perfectly, or even if it seemed to fail entirely.
The reason for having that goal may still be sound.
It sounds obvious, but don’t give up! Regret over failure is far harder to deal with than the failure itself.
Really, falling off a goal creates a valuable opportunity to learn and grow – new skills and the resilience to cope with future setbacks.
You can read more about revisiting your goals if they don’t seem to be working here.
Don’t try to change your world on day one
Ms Clothier, who is part of the Financial Mindfulness team says it’s important to ‘start small’.
Choose one area that you can become better organised.
Perhaps it’s organising your filing system, or becoming more organised with bill paying, or cleaning out your wallet.
“Finish that one task, then move on to the next,” she says.
“It will be less overwhelming and you’ll create momentum as you complete each task.”
Ask for help. If you’re not sure, ask others what they do? How they organise their finances or what apps they might use etc.
Once you’ve sorted them, keep on top of your finances on a weekly basis.
“Putting in a few minutes each week is much easier than taking a few hours each month, which can become daunting,” Ms Clothier says.
It will be easier to keep track of and stay organised if you do a little bit, often.
Clean up your admin to reduce shame around money
Boring yes, but important? Absolutely crucial.
A basic as it sounds, getting organised starts will filing.
Set up a filing system – in your computer or online – to arrange all financial documentation be it electronic or paper.
Start with getting those bills organised into categories, e.g. Utility bills (electricity, gas, etc) in a separate folder.
Create folders in categories that mean you are more likely to pay attention to them – and not be able to ignore them.
A tidy system with money actually reduces our shame around money, which is incredibly valuable.
That in turn reduces the belief that we might not ‘deserve’ to have positive experiences with money.
Budget early and budget often – just do it!
Instinctively, we know that budgeting allows us to manage money wisely, avoid financial stress, and be in control.
The simple answer to ‘why budget’ that it’s a habit that is always helpful to our financial situation.
Setting up the simplest of budgets is a big step forward to managing weekly, monthly and yearly expenses.
It’s important to note that budgeting is not easy. It is a commitment to a new way of thinking about money, and it adds a whole new layer to how we interact with money.
Budgeting is a high-level mindful money practice – it’s paying attention to what we earn, what we spend, what we need and our attempts to change for the better.
Succeeding means not giving up in the pursuit of this new life skill.
The proper motivation is needed to undertake this skill of being constantly curious about your money.
To make budgeting work you need to return to it every day to begin with, then at least every week – for a long time.
Budgets only work if they are realistic and if they are ‘live’ systems – so they need to be integrated into your daily life, reviewed and revised if they are not working.
Eventually you can review and revise your budget monthly.
Basic budgeting steps include:
- Properly determining your household income;
- Begin tracking your living expenses;
- Balancing the budget;
- Go back and review your expenses;
- Review your income potential; and
- Balancing the budget – yes again.
To learn more about how to budget, read on here.
An overlooked but essential element of budgeting is simply making time for it. Sounds obvious but it’s a budget killer.
“You must allocate a regular time to review what you have spent money on and what expenses might be coming up that are large or lumpy,” Mr Ferguson says.
We also have produced detailed material about maintaining a budget which you can find here.
The steps to maintaining a budget include:
- Schedule your budgeting practice;
- Make budgeting a game that you ‘win’ at;
- Review the value of your money and simplify your budgeting;
- Get smarter about your use of credit;
- Get real about planning;
- Experiment with ‘not spending’;
- Nominate a budget buddy and get accountable; and
- Become proactive – and stay positive.
Take the ‘risk’ out of your regular bills
Paying bills – including card and loan repayments, energy bills, groceries and other recurring obligations – are among our followers’ main contributors to financial stress.
For people who cannot ‘get on top of’ regular bills they are things to worry about, instead of what they should be: transactions that buy us safety, enjoyment or investments in our future.
When we are not clear or organised with bills they can become risks.
Not all bills are created equal. There are basic but significant differences many of us don’t consider when managing our money.
We need to learn the difference between regular and variable bills.
Some bills recur at the time for the same fixed amount (with perhaps usually small incremental increases). These include mortgage, rent, rates, insurances, car registration, school fees and health insurance.
Other bills are variable, meaning the payable amount and date due can changes significantly.
These include servicing a car, paying for trades to fix something in your home.
Even though you know they are coming, you won’t know exactly when they will occur or how much they will be. A vital first step in managing bills is to identify the difference: which bills are for your needs and which are for your wants.
Think carefully about this: is the bill for something you want or need?
Once you had done this background work, it’s time to set up a crucial action plan.
To get control of household bills it’s important to have a full master list of bills – including regular and variable. Note the likely amounts payable and likely due date.
Consider taking some time to think about those items that are essential, but not regular. Think about the frequency that you would like to plan for those items and what amounts you might need to put aside
At the beginning of each month, create a checklist (separate from your master list) of the bills you are expecting to pay and the approximate amount.
It is wise to do this not just for the current month but the following month as well.
This list can be handwritten or electronic. Allow space on your checklist to mark if the bill was received and when the bill was paid.
Ideally this is what you would do when bills arrive – either in your mailbox, inbox or by SMS notification.
- Don’t ignore your bills.
- When they arrive open them.
- Read and ensure you understand them. Is the bill correct according to your records?
- Check the amount and time to pay.
- If it’s urgent, pay it as a matter or urgency.
- Keep all your bills together so it’s easier to keep track of them and pay them.
Set aside some time each month to pay your bills in line with how often you get paid. An hour is usually enough.
Bills need to be paid on time – this is an absolutely critical point towards helping you get organised.
“As you have organised all bills into separate folders, create reminder’s to pay before the due date,” says Andrew Fleming, Financial Mindfulness founder.