9 ways to organize your financial life

KJ: Organizing your financial life can sometimes feel daunting, but here are nine ways to help you get organized and STAY organized.

Utilize Electronic Records
Keep copies of account statements. When you get those “pesky” e-mails saying you have a statement available, go and download it. If you want to save the environment and storage space, save it to a secure USB drive. If your USB or storage device isn’t password protected, then consider getting software that can encrypt your documents. “My Passport” 1TB External Hard Drive is my personal favorite, but more budget friendly products with much smaller storage like SanDisk 32 GB USB Flash Drive will also do the trick. There are few things worse than leaving yourself exposed to virtual identity theft that you may not even be aware is happening! Given the litany of statements that come my way, I make it a priority to set aside time after the 5th of the month to download the prior month’s files. Sure banks often keep statements online for YEARS, but what happens if you change banks and your login expires? You no longer have access to your statements: that’s what. Electronic storage can allow you to keep data far longer without having to waste a bunch of space. Who likes maneuvering around those cardboard boxes and carrying them up the stairs to the attic anyways?

Invest in Accordion Folders
These are great for storing receipts as well as storing coupons. Sort by expiration date, store or whatever method of controlled chaos you prefer. Check out Smead Expanding Folders, they’ve got a lot of different options. So does your local Dollar Store or WalMart, so if you’re really looking for a bargain, stop by on your next errand trip.

Communicate, Communicate, Communicate
Kind of ironic that I’m the one saying this, as I’m by far the lesser of the two communicators, but hey, when it comes to finances, the last thing you and your spouse (or significant other) should do is close the communication doors. You can’t stay organized with things you have going on if one person doesn’t keep you in the loop when purchases or updates are made.

AJ: Kirby and I are each responsible for separate aspects of our finances. Kirby pays the bills, decides which accounts receive savings monthly, and strategically keeps us on track for the long haul. I track our variable expenses: gas, food and groceries, miscellaneous expenses (gifts, pet food, hair cuts), so if we aren’t in lock step on communication, we could potentially go very far awry. See our post on creating a budget together. Kirby’s all spread sheets and I’m all old school: pen and a Moleskine Ruled Journal. Whatever method works for you, just ensure that you are regularly communicating and are working from the same numbers.

Take Inventory of Your Accounts and Assets
KJ:This would include accounts like: checking, savings, CDs, money market, brokerage/investment, and retirement. Periodically update the records to include information about login credentials, account numbers, values, etc. Due to the sensitivity of the information, this should be stored in a highly secure place that only your spouse (or a very close loved one) would have access to.

Take Inventory of Your Loans
Similar to #1 above, make a list of any liabilities you have whether it’s a student loan, home loan, auto loan, credit card, or line of credit.

Get a Will and Update Your Estate Plan
When was the last time you looked at your estate plan? Months, years, DECADES? If it’s been a while since you have updated your estate plan, it might be time to revisit. In particular, have you had any new additions to your family, are any family members now of legal age (I suppose you don’t need to specify a legal guardian for your 24 year-old son still living at home…), or have any family members passed away? It can be a good time to sit down and talk with your significant other if your goals may have changed too. Cousin Bobby isn’t getting any of my money anymore…but Bill & Melinda Gates will!

Update Your Beneficiary Designations
IRAs, 401(k)s, many other types of retirement plans, and certain types of bank accounts can pass to a survivor without going through your will. Therefore, check to see that you have the appropriate designations for a primary and contingent/secondary beneficiaries.

Meet with Your Financial Advisor
If you work with a financial advisor, then gather that list of questions you’ve been meaning to call about but haven’t had the time. Call him/her up and discuss any recent changes.

Secure Your Data
Don’t forget the most important advice: KEEP IT IN A VERY SECURE PLACE! I cannot emphasize this point enough. The last thing you need to deal with just after you’ve organized your finances is for someone to take the information and turn it back into a financial mess!

    What methods of organizing your finances work best for you?
    Do you have anything to add to this list?
    Is there anything you would remove from the list?

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Lessons from 2008

KJ: While I’ve always been a saver, I’m not sure where I would be if it weren’t for 2008. The events that unfolded and the experiences I gained were astronomical, but the bottom line of it all was: inappropriate debt causes insurmountable problems. It’s with this perspective that my aggressive saving really was able to kick-off into the position that my wife and I are in today.

With limited money invested since I was only truly beginning to ramp up my savings, the impact of the colossal crash taught me that all walks of life: extremely wealthy (however you may personally define that if it’s a net worth of $500,000, $10,000,000 or $100,000,000), middle income, and lower income alike were devastated by too much debt. I learned very valuable lessons to live not just within our means, but beneath our means. The Great Recession served – for better or for worse – to really test me on the difference between a ‘want’ and ‘need.’ Sure I need an expensive car, fancy clothes, and a mansion, but I really want food today. Maybe I’ll just get the car. Food isn’t really that important. Wait what?

While my wife and I do partake in our share of what may be considered extravagant meals and trips, we assess our current state each month (more realistically, multiple times a month) to make sure we are on track, saving appropriately, and aggressively cutting expenses when we need (or want) to. Long day at work, craving for all you can eat beef at Texas De Brazil: I think I am willing to eat peanut butter and jelly sandwiches for a week to make-do. Everyone has expenses that are particularly meaningful to them, and for me it’s vacations and food experiences. Whatever sacrifices I need to make in clothing, auto expenses, or finding creative, budget conscious choices for lunches (soups, leftovers), I find a solution to accomplish my needs and the most important wants, so I can save for a rainy day deductible or job interruption and not amass high interest debt in a time of crisis.

AJ: 2008 for me was really just the beginning of our lives together, and it was a really big year for us. We both graduated from college, moved back home, started our first “real jobs,” and purchased our first home together. I’m incredibly thankful for the fear that filled both of us as we thoughtfully made all of those decisions with the overwhelming coverage of what was about to happen to our economy. Of the two of us, I’m certainly the more extravagant, but I’m also the most motivated by a seemingly insurmountable challenge. If Kirby decided tomorrow that he really wanted a Rolex (this is both highly unlikely and comedic, given Kirby’s preference for oversized athletic pants and hoodies when lounging around on the weekends – a throwback to his high school days), I would work diligently to make that happen. 2008 for us meant agreeing to put our future before anything we may decide we want or need in the immediate present. I know there was a lot of destruction in the years following 2008, but for a generation that was given so much from a very young age, I’m thankful for the perspective and for what it might mean for us all to be more practical and more logical.

    What did you learn from 2008?
    If you had it to do over again, what would you change?

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What is a 401(k) anyways, and why should I care?

KJ: Forty years ago, 401(k) plans didn’t even exist. In the days of our parents and grandparents, the primary source of retirement income came from pension plans. They provided families with retirement income similar to how Social Security functions (and often times private pensions could extend to the surviving spouse or heir).

Retirement Income Sources Are Changing
Nowadays, pension plans are not usually available for most employees. In fact, traditional pension plans covering employees have declined to only 20% of private workers over the last 30 years(1). Times are very different. Employees do not stay at the same firm for their entire 30+ year career. Since employees change jobs frequently, corporations began to shift retirement income funding on the responsibility of the individual. In prior generations, individuals – take my grandpa for example – worked at a company for decades, retired in their mid-60′s, and then lived for another 20-30 years to age 95! That’s a long time in retirement for any pension plan to sustain. Due in part to changing demographics from increasing life expectancies and declining average years at an employer, the modern-day 401(k) became popularized.

Take Responsibility and Contribute Today
What it boils down to is if you do not participate in a 401(k) plan, but you have access to one, you need to be contributing! If you aren’t, then you may have no other source of retirement income and assets other than Social Security – whatever shape or form Social Security takes over the next 20+ years.

Some people describe that they cannot afford to contribute to their 401(k); the reality is you cannot afford to NOT contribute to your 401(k) if you ever have a desire to retire or scale back from work. At a minimum, you should be putting away at least 5% in your 401(k) at work. The IRS allows an employee to contribute up to $17,500 per year (for 2013) and up to $23,000 if you are older than 50.

Unfortunately, some people get bogged down by the lingo of it all that they do not realize they are leaving money on the table by not contributing to their 401(k).

Employer Matching Opportunities
One of the greatest features about 401(k)s is that most companies offer a matching opportunity. If you contribute a certain amount of money, then the employer may match part (or all) of the contribution. There’s no better way to get an instant 100% return on your investment and savings!

    Illustration: For round numbers, if your family makes $50,000 per year and puts 5% into a 401(k) with the employer matching 4%, that means after one year you would have saved $4,500, and after five years you would have saved $22,500 (without including any type of investment growth!). In reality, if you had saved this money in another account on your own, then you would have only put in $12,500 of your own money: that’s only 56% of the 401(k) amount with the employer match.

    If you factor in an average investment growth of 5% per year, then with the employer match you would end up with $24,865 while saving your 5% on your own would result in $13,815 – a difference of $11,050.

AJ: Long before 401(k)s were cool my dad was singing their praises. As a manager in a major corporation in the 80s he saw how rapidly employer-funded benefits were decreasing and was desperate to help his employees make better choices for their families and their future. Kirby’s numbers above speak for themselves and I am sure those people who worked for my dad that didn’t heed his advice are kicking themselves every single day about it. If you truly can’t afford to put 5% of your income aside, consider getting a once-a-week part-time job to make up the difference and allow you the opportunity to save for your future. It is negligent not to find a way to leverage such an incredible opportunity to earn free money.

Your contributions are YOURS
KJ: The best thing about a 401(k) is that all the money that you put in yourself is yours to take whenever you leave the company whether by choice or other circumstances. Typically, you can then roll over the 401(k) into a new 401(k) with your new employer or you can roll over the funds to an IRA (e.g. at Schwab, Fidelity, TD Amertirade, Scottrade, etc.). In many circumstances, the contribution the employer makes to the 401(k) may have most – or all – of the contributions from the employer rolled over when you leave(2).

A Traditional 401(k) is deductible on your current year income taxes. Sure, you still have payroll taxes that are assessed (7.65% – 6.2% Social Security with 1.45% Medicare), but you save on the current year’s income taxes. A Traditional 401(k) is particularly beneficial if you expect to be in a lower tax bracket in retirement with little income sources other than Social Security. Keep in mind that it’s not just a consideration of what current tax rates are, but rather an expectation of what future tax rates may be since today’s tax rates are near historical lows.

Roth 401(k)
If you’re one of the fortunate few, some 401(k) plans allow you the option to put money in what’s considered an “after-tax” 401(k) (i.e. a Roth 401(k)). This means that you pay income taxes in the current year on the contributions, but you don’t have to pay income taxes on the earnings/growth in the future when you take money out of the account (under certain age restrictions per the IRS). The Roth feature can be very attractive for younger individuals saving for retirement where they may be in a much higher tax bracket in their later years of life. It can also be a great way to get funds in a Roth-type account if you and your family can no longer contribute to a Roth IRA due to income limits.

    Do you have a 401(k) at work?
    Does your employer provide a matching contribution?
    Do you maximize your 401(k)?

For more information comparing a Roth 401(k) to a Traditional 401(k):

(1) Social Security website
(2) Note: Some plans have rules and restrictions of how long you have to have worked with the company based on a "vesting schedule" and how much of the employer's contributions are yours.

What is a 401(k) anyways, and why should I care? is copyrighted by TheSimpleMoneyBlog.com without consent to republish.

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Quicken or Mint.com?

Quicken vs MintKJ: For me, the answer isn’t “OR” it is “AND.” I actually use both Quicken and Mint.com to track my personal finances (so it’s less a Quicken vs Mint type of mindset). While some might consider it excessive, I like both systems for different reasons. With Mint.com being a free personal finance software and Quicken being a paid version, how do you decide between which money management software is right for your situation? Consider the following:

Why Mint.com?
1) It’s free!
2) It has a much more robust budgeting tool to help manage my wife and I’s day-to-day expenses to see if we are meeting our savings targets we have set. With the interactive charts and instant connectivity, you can know where you stand at any moment of the month.
3) It has the same bank-level encryption on their servers that many of the top banks use (Chase, Bank of America, etc.), plus you DO NOT have the ability to move money or effect transactions between your accounts on Mint.com since the data it pulls is only transactions and holdings information (in the case of investment and retirement accounts).
4) Access it on the go: download their iPad, iPhone, or Android apps.

Why Quicken?
1) It is better at tracking historical data. I actually started using Quicken in the first year of college, and I have maintained it since, so it has been a great reference to show longer-term trends in net worth, income, and expenses. Plus, when I categorize the transactions, there isn’t a fear that Mint.com (or another tool) will update their coding and accidentally change your transactions.
2) The data is located on your own computer, so it is at your discretion how often to backup and how to secure your own data instead of leaving that up to a third party.
3) Charts, reports, and tags to transactions are much more customizable.
4) It works for almost all asset and loan types.

The negatives:
1) You have to be at your computer to access Quicken (not necessarily true for their new 2013 cloud capabilities).
2) Mint.com does not have the ability to add “manual” accounts like Quicken does. Sure, you can setup assets/loans with values you update, but you can’t add any transactions for that account. In essence, if you have an account or loan that is at a small bank, you may not be able to link it to track expenses.
3) Many of the more robust charts require the use of Flash, so using on an Apple product can be troublesome (or impossible without a little technical expertise).
3) It takes time. No one said managing your finances was easy, but it’s certainly better (and cheaper) than the alternative of letting it go by the wayside!

Regardless, of your personal finance system, use a different username and password than what you use to connect directly to your bank accounts and financial institutions. You can never be too secure when it comes to safeguarding your personal and financial information!

AJ: Mint.com was a personal finance management game changer for me. I can access it from my phone, iPad or computer and have a relatively similar experience in all places. It helps by categorizing transactions for me with little error which saves me time and effort. While I appreciate the transaction-level itemization that Kirby gains from Quicken, it is not as beneficial for my day-to-day finance management. It truly is all about what you hope to gain from a management tool and how you think you will use it. Thankfully, Mint.com is free, so start with a free option with no barrier to entry and see how you feel about the overall experience. If you feel like you could use even more line-item detail, look into Quicken.

What works for you?

    Do you use Quicken or Mint.com?
    What simple money management programs do you use?
    Is there perhaps another method you prefer?

Related posts:

Quicken or Mint.com? is copyrighted by TheSimpleMoneyBlog.com without consent to republish.

Some of the links in the post above may be affiliate links. This means if you click on the link and purchase the item, we will receive an affiliate commission. We feel strongly about only recommending products or services we use personally and/or believe will add value to you, our readers. Read more about our commitment to providing quality product recommendations.