Organizing Personal Finances: 5 Simple Steps {+ free workbook}

Post last updated June 26, 2021

Building a simple, sustainable money system is crucial to financial success. And if you’ve never set out organizing personal finances in any deliberate way, you may wonder where on earth to even start? If you’re looking for an organizing finances binder, you won’t find that here, however. If money management required a binder, I would be a disaster. I like things simple and efficient… and as paperless as possible.

This approach has helped me payoff all debt besides mortgages (one for investment property, one for our home) and bank tens of thousands. Whether you’re just starting your first job or you’re a family with a long list of bills and a mortgage, my answer for where to start with organizing yourself around money is the same.

Start by drilling your dollars down to one key monthly number (your Magic Monthly Number I call it). Once you have adopted the mindset of thinking of your total money picture in this simple structure, you’ve laid a perfect foundation for money organization. From here there are numerous strategies you can employ to optimize each slice of your financial pie. If one number sounds like a simple way to get started to you, keep reading!

You can’t organize every aspect of your household finances in a day. But drilling down to your Magic Monthly Number will give you a simple place to start layering other strategies as you build your financial education and plan. From that simple foundation, you can follow a wide array of tips and strategies to continually work towards various money goals. The sky is the limit!

But first, let’s start with that simple foundation.

What's In This Post

Step 1: Start organizing your finances with one monthly number

To take your first start, or a fresh start, towards organizing personal finances, it helps to take a high level view. Identifying the one dollar total of money left after your fixed expenses (regular monthly bills) are paid is the key place to start. You directly control everything that happens after your income is earned and those monthly bills are paid. I recommend organizing personal finances by month because 90%+ of bills are paid on a monthly basis. And there’s a lot more nuance to strategically manage all the non-monthly stuff, some of which you can read about here and here.

Step 2: Do not pass go without a vision!

Once you’ve determined your Magic Monthly Number, you can decide your next best step. Ultimately, it is this dollar amount that you can allocate to paying down debt, saving, and spending.

There isn’t a right amount of spending anyone can tell you, but it’s the amount that fits with your saving and debt payment goals. So, instead of starting with a categorized budget, I like to start with your longer term priorities and goals which direct how you deal with your debt and savings. Then what’s left is what you can spend on everything else from groceries and gas to lattes and entertainment.

Think about where you see yourself in 1, 5, and 10 years. What do you want more of and less of in your life? How can your money be used to help you get there? You must spend some time developing answers to these questions and a vision for your life and your family. This big picture plan is what will drive your decisions for putting the pieces of your financial picture in place. This is a very important part!

You can organize and plan all you want, but if you haven’t defined the big picture priorities and goals, you might find that plan leading in the wrong direction. Don’t skip this step.

Step 3: Organizing personal finances into four simple buckets

The framework to organize your money in your mind (and your basic budget) is just four buckets. You have the usual bills (utilities, insurance, childcare, mortgage/rent, etc.), your monthly savings, extra payments towards debt payoff, then the rest for spending (from groceries to lattes & everything in between).

Fixed Expenses

Your fixed expenses were the usual bills and minimum debt payments (e.g. insurance, rent/mortgage, utilities, student loans, childcare, etc) you subtracted away to come up with your Magic Monthly Number (grab the workbook in the Shop for the exact way I calculate this). So we’ll call those ‘fixed’ expenses one bucket.

Then your Magic Monthly Number pours into three other buckets where you can strategically allocate the money you have to work with right now: your savings, your debt attack, and your spending.

Savings

With a monthly spending cap firmly in place, you can now identify what’s needed in your three layered savings account (which includes an emergency fund). The choices are yours and should be informed by your family’s situation and long term goals.

Debt Attack

This bucket is all about the extra money you will put towards debt payoff, one target at a time. It does not include the minimum payments for loans and debts that are part of your usual monthly bills (fixed expenses). For this bucket, you will simply organize your debt payment plan and pick that first target to attack. With a plan in place, you can then choose where to create the financial space to pick off debt accounts, one at a time.

Spending

When you’re first starting out organizing your finances, just setting some bounds on your spending is an important place to start. Even if you decided to put zero in savings and zero against debt for now, your spending will now have a concrete limit equal to your Magic Monthly Number.

Having this monthly spending cap is a key number in organizing personal finances because it is the one number that connects your big-picture financial well being to your day to day life choices. It’s the easiest number to rapidly cut down and the easiest one to blow out of the water.

If you’re new to budgeting or have been digging yourself deeper into credit card debt, this is where you start. Just respect that monthly spending cap, job number 1. Try on your new spending limit and see how it feels. I do this by monitoring my weekly burn rate with a spending buffer off to the side (much more on that here).

Essentially, for my burn rate budget approach, you put aside one-third of your spending cap to cover the relatively more expensive occasional stuff that inevitably pops up (e.g. special occasions, vet, subscription/membership dues, etc). After taking 1/3 of your spending cap away, divide what’s left by 4.33. This is your weekly burn rate for day to day spending. Monitor it, respect it. Simple as that.

If you feel like you don’t have any extra money to split between these three buckets, don’t give up! That’s what this blog is all about.

Step 4: Get a month ahead of bills

Once you’re feeling a little more settled in the direction you need to go, the first specific goal I recommend is to make sure you are one month ahead of your bills, always paying this month’s bills with last month’s money. Get 8 specific strategies to get you there in this post and never worry about late or missed bills again. It is a game changer to pay bills this way- schedule them all at once each month and then sit back and relax. Do this in the context of a broader cash flow plan and you’re golden.

…the first specific goal I recommend is to make sure you are one month ahead of your bills…
The Family Money Mentor

Step 5 & beyond: Pick your favorite strategies for optimizing finances

After that, just target areas one at time and think of it as a continual, evolving building process. Organize a plan for what you can do to optimize each bucket. Then, since these numbers are all connected, your work in any area will pay off in the other areas.

Below are strategies that you can choose from to help you within each of these four buckets. Choose the ideas that fit your values and priorities best. Go after things that give you a sense of satisfaction to help fuel momentum towards putting your finances in order. You don’t have to go straight to extreme deprivation. Do what keeps your commitment to your big picture vision strong.

Ideas for optimizing fixed expenses (monthly bill payments):

Make smart choices about your biggest cost, your home
Understand the importance of appreciation and loan lengths when buying a house
Cut cable & use a short list of preferred streaming services instead
Switch to VOIP home phone service
Look into better value cell plans
Buy plenty of term life insurance coverage early, when you are young and healthy, to get the lowest rates
Make a thrifty vehicle choice, and delay the impulse to upgrade your vehicle. Repairs might seem expensive, but so is a loan on a depreciating asset.
Reshop your car insurance (I just did this and saved $1200 per year- and got even higher coverage for home, car, and umbrella liability)

Ideas for lower day to day spending:

Look into adopting a more frugal mindset, including prioritizing quality over quantity, needs over wants, your spending values over someone else’s
Utilize whatever budgeting approach fits your personality to stay below your monthly spending cap. I like things simple and efficient (no categories, no cash envelopes), so I use my ‘burn rate’ budget method
Track spending in your high-spend or problem areas as needed to force yourself to think twice
Use my $10 decisions approach
Rethink your food spending habits
Learn how and when to apply to honor your monthly spending cap
Implement a no spend month to get some fresh perspective on your spending habits

Strategies for debt management:

Embrace a culture-shifting mindset on debt for your family and future
Get to know your credit report and correct errors
Read up on what affects your credit and track your score as incentive (don’t pay for this tracking- I haven’t used it myself but hear Credit Karma is helpful and is free. Also many major credit cards and banks offer this information)
Arrange payment plans for any delinquent debt
Lay out your debt amounts and interest rates and attack one at a time (use the Debts tab in my spreadsheet download)
Pay off your lowest balance first (snowball method) to free up cash to put towards the next debt. Momentum!
Consider consolidating any high interest debt after improving your credit score (a financial advisor could help here)
Use improvements made in your fixed expenses or spending to divert that money to your debt payment goals

Ideas for optimizing your savings approach:

Set goals: use my 3-layer savings approach to identify how much money you need in your emergency fund, your planned expenditures for the year ahead (e.g. irregular bills, vacation, special occasions, etc.), and targets for your big dreams and family goals. (Read more here)
Find the leaks in your bank account from automatic charges that aren’t returning high value & divert to your savings account to save money automatically
Protect your savings by having adequate insurance, particularly car insurance and renters insurance (your landlord’s policy does not protect your stuff!)
Be ruthlessly strategic with extra money from ‘windfalls’ (small and large) to grow your savings account
Use improvements made in your fixed expenses or spending to divert that money to your savings goals
Track your net worth as a motivating single number to summarize your saving, investing, and debt payoff collectively

Key takeaways for organizing personal finances

There are so many strategies to help you achieve your goals once you have a simple approach to organizing your finances. Remember, you don’t have to do it all at once- just start by figuring out what’s leftover on a monthly basis after the usual fixed bills are paid, your Magic Monthly Number, and start sticking to your spending cap.

From this simple foundation, you can start thinking strategically and setting goals for the three areas of your Magic Monthly Number (debt attack, savings, and spending) as well as smart approaches to your ‘fixed’ expenses. With this mindset for organizing personal finances, the possibilities of optimizing the various slices of your financial pie are endless. Simply layer one strategy at a time to continually hone and improve.

When you hit bumps in your path, be sure to return to the basic structure of your money picture and just keep working at it. With a simple, but strong foundation, you can always make choices to keep moving towards your goals, and ultimately keep building towards your best life. Because always remember, financial planning is driven by life planning and family goals. Use your money as a tool to take you where you are meant to go.

You Might Also Like:

Cash flow planning: the secret sauce for your family’s finances
Why you can’t stick to a budget: Budgeting philosophies and how to spend wisely without a budget
Cutting The Budget: The Complete Guide to Reset Your Spending

Organizing Personal Finances: 5 Simple Steps {+ free workbook} - The Family Money Mentor (2024)