Household Financial Organization
It is important to get organized because without adequate understanding of debt, expenses and income, it is virtually impossible to gain financial health.
Household financial organization consists of three major components:
- Setting goals
- Efficient record keeping
Setting Financial Goals
The first step to successful money management is to have financial goals. Financial goals can consist of anything that you would like to work to achieve. Goals can be Short Term (less than one year); Intermediate Term (between 1 and 5 years) and Long Term (Over 5 years) in length. To help reach your goals it is important to make a plan and write it out on paper. One way that you can ensure to reach your goals is to make SMART goals.
SMART goals are:
- Specific (who, what, when, where, why)
- Measurable (how much needed to save?)
- Attainable (can this be achieved?)
- Realistic (is your goal realistic?)
- Time Sensitive (when will you achieve your goal by?)
The SMART system of goal planning will get you where you need to be every time.
Now that you have identified short, intermediate and long term goals, it is time to effectively organize important family records, debt, and future expenses.
The next step is developing a tracking system. The tracking system must be easy to follow and used by all members in the household. Like any successful team, one family member needs to take the lead and rally the family around the “new way of doing family finances” in the home. Each family member should volunteer or be assigned a specific role as it relates to maintaining a record and tracking system.
Creating a filing system is one way to ensure that the family is on the same page, storing information in a consist matter. The container you store important family and financial documents should be both fire and water resistant, as well as easy to carry in case of a natural disaster or other emergency causing you to leave your home quickly. For additional tips surrounding emergency preparedness, visit eXtension and Organizing Your Financial Papers.
Getting organized is not limited to documents you keep at home. Other considerations include documents that might be best kept in a safe deposit box. For example, birth certificates, passports, and marriage, divorce and/or adoption papers are difficult to replace thus a safe deposit box might be a consideration. Likewise, in some cases it may make sense to have documents sealed and kept with another person in another location. For more organizational tips, visit eXtension and Organizing Your Financial Papers.
The final way to get organized is to document your financial transactions to get a clear understanding of your financial health. Three financial records that you can use to assess your financial situation are:
1) Cash Flow Statement
2) Balance Sheet
A Cash Flow Statement tracks your financial transactions in the past. It often helps you assess your income verses your expenses for a period of time to help you understand if you had a surplus or a deficit for that time period.
A Balance Sheet (or Net Worth Statement) collects your assets minus your liabilities to assess your net worth. Assets can be described as anything that you own and are usually calculated based on their fair market value (or what a willing buyer would pay a willing seller.) Liabilities can be short term (less than one year) or long term (greater than one year) in length and are defined as any type of debt obligation that you have. For more information, visit eXtension and “What is Your Net Worth?”
A Budget is a tool to help you plan how you will spend your money in the future and a tool that can help you stay on track to meet your goals. Budgets make a plan for the income that you will take in and your expenses that you predict you will have in the future. To learn more about creating your own personal budget, visit “Creatng a Monthly Budget.”
Don’t know what a word means? See the Glossary for a quick reference on some financial terms.