10 Steps to Organized Finances

Maybe you’re sitting there looking through credit card statements and bank transactions wondering how the heck you got yourself into this financial mess. Or maybe you think you’re on the right track but not quite sure what you need to work on next.

Today I’m going to break your finances down for you into 10 steps, so you have a coherent plan (and a fun little infographic) to follow. The system is straightforward, but I’m not going to tell you it will be easy. Paying off debt, saving money and applying for insurance require you to do some work and might make you feel a little guilty about how much money you spend on fro-yo (or coffee, or avocados, or speeding tickets). For that, I’m sorry (only a little though), but I promise that once you’ve made it through each of these ten steps (especially the last one), you’ll be thanking me and a lot happier with yourself.

I recommend doing the steps in this order, but if you’re already on the journey to being the Queen (or King) of your financial domain, then feel free to jump in wherever you need to.

1. Track Expenses

The very first thing I want you to do is to figure out where your money is going. Grab a big cup of coffee and gather up your account statements for every bank account and credit card you own. If you currently use an app or spreadsheet to track spending then fire that baby up instead. I recommend going back at least 3 months to get a good picture. Don’t forget about annual or quarterly payments you might have.

If you use cash for the majority of your purchases, then this exercise becomes a little more challenging. Likely you aren’t writing down or inputting each transaction, but now that’s exactly what you have to do. Start up a note (Evernote is my bff) in your cell phone and make a point of entering each purchase you make for a few months.

Your goal here is to split up your spending into two main categories; essentials and non-essentials. I use an excel spreadsheet for my tracking/budgeting because it gives me more flexibility than any of the apps I’ve tried. If you’d like a copy of my spreadsheet, you can sign up for my email list (over on the right of the screen), and you’ll get free access. Once you’ve entered all your expenses, you’re ready to start tweaking the numbers.

2. Make a Budget

Now that you know how much you are spending and where it’s all going, you are ready to determine where you have excesses or shortages. The only way to get ahead financially is to bring in more money than you spend every month. To see if that’s you then take your monthly income (from everywhere…work, side hustle, rental income, etc.) and then subtract the total amount of spending (essential and non-essentials). Did you get a positive number? Yay, you! You’re not completely off the hook though. I bet there is a bit of trimming we can do to make that positive number grow even higher. If you’re instead in the negative, then we’ve got some work to do.

Go through the line-items of your budget and determine what spending categories you can lower or completely eliminate. This will leave you with more excess at the end up every month.

Once you know that excess amount, you need to redirect it….onto the next step!

3. Tackle High-Interest Debt

Paying off debt is going to be the least fun step, but it’s also the most important and will have the biggest impact. If you are one of the lucky few who has no debt, then pour yourself a glass of wine and skip ahead to number four.

I’ve written more extensively on debt repayment in the past so check out this post for all the details. You want to choose either the ‘Debt Snowball’ or the ‘Debt Avalanche’ repayment strategy and start directing the excess in your budget towards getting that debt paid off. For now, just focus on your high-interest debt and don’t worry about making extra payments on your mortgage or student loans.

4. Emergency Fund

Next up is building up a safety net so that you don’t go back into debt if (when) you have an unexpected expense. Some people argue that you should load up your emergency fund BEFORE paying off debt, but I like this method better. Your debt will accrue more interest for every day that you have it so getting that out of the way first will save you in the long run. If you run into an expense before you have an emergency fund then yes, you are going to have to use your credit card, but you’re not any worse off than if you had done it the other way around.

My recommendation is to have AT LEAST three months of living expenses in your emergency fund at all times. That’s a minimum, and the actual amount will depend on your situation. If you have a stable income with good job security, then you are likely ok with the 3 months. If your job situation is a little more precarious or you are self-employed, then you might want to increase that to 6 months.

Your emergency fund should be kept in a high-interest savings account so it is easily accessible and not affected by the market. It’s a bit of a balancing act; you want enough money so you’re covered, but not too much because it isn’t earning you much.

5. Open a TFSA

Now you’re rolling and onto the fun stuff…building your net worth! All of a sudden (ok, maybe it felt like forever), your debt is paid off, your emergency fund is fully funded, and you have this excess amount in your budget that you don’t know what to do with. Save it! The next two steps can likely be started at the same time, depending on how much money you’re making and which makes the most sense. Check out this post to figure out if a TFSA or an RRSP is a better option right at this moment. Spoiler: RRSP’s are better for when your income puts you in a higher tax bracket, TFSA’s are good…well always. Likely the best solution will be a mix of both, this gives you both the tax advantage and the flexibility.

You can open a TFSA with just about any financial institution in Canada as long as you are over 18 and a resident of Canada with a valid SIN. As of 2017, you have a total of $52,000 of contribution room available (assuming you were 18 or older when the plan was introduced in 2009) and you want to take advantage of all that room before you start investing in a non-registered account.

6. Open an RRSP

You earn RRSP room for every dollar of income you earn, which means you likely have a good chunk available already. As I said above, RRSP’s are the most beneficial when you contribute during your highest earning years and then withdraw in your lowest income years.

Your RRSP and TFSA contributions will run indefinitely, so these two steps are about getting started and not hitting an end goal. My suggestion is to get the accounts open, start automatic monthly contributions (set it and forget it) and then move onto step 7.

7. Term Life Insurance

Time to start thinking big picture. Insurance is not my favourite subject to talk about which I why I don’t tackle it that often on the blog, but for some people, it is very, very necessary. If someone’s life (financially) is going to be turned upside down if you die then you need term life insurance. Most commonly this would be a couple who relies on income (either from one or two people), have children and a mortgage. If one of them passes away, then it will be a struggle for the survivor to pay the bills…that’s where life insurance comes in.

If you are a single renter with no children, then it’s very likely a hard pass.

One of my favourite bloggers (Desirae from Half Banked) recently wrote a fantastic post about term life insurance so instead of getting into it here I’m going to send you over there and let her drop the knowledge on you 🙂 I completely agree with her stance on whole life insurance and that term life insurance is the way to go.

8. Make an Estate Plan

Creating an estate plan is another one of those things that is essential for people with dependents and assets that will need distributing, but not so much for people who don’t. Full disclosure…I don’t have an estate plan, but I promise it will be one of the first things I do after having kids. Right now, the majority of my assets are shared with my common-law bf, and so it would all pass to him if I were to die. I’m good with that, so I haven’t had the need to get a lawyer to write up my will.

If you have children, then you need to get this done so that they have a caregiver assigned. It will cost you a few hundred bucks to get an estate plan completed by a lawyer, but it is worth it. They know the ins and outs and will ensure it is correct, something you can’t be sure of with one of those ‘Write Your Own Will Kits’ you can get at the As Seen On TV Store.

Another thing to consider is whether or not your own parents have an estate plan in place. If you’ve never had that nice little dinner-time chat with them, then I’m adding that as a requirement in this step. Push them to do it if they haven’t already, and if they have, go over it with them, so you know what to expect and can respect their wishes.

9. Short-Term Savings

Phewf, you’re doing great, and all the hard stuff is done. That death talk was depressing hey? Sorry about that.

It’s now time for a little freedom. You’ve got your debt paid off, emergency fund is good, savings are automated, and your future has been secured. I think it’s important to enjoy life now and not always be looking down the road at retirement, so I want you to start a savings account for short-term goals. This will be separate from your emergency fund but you will still want to keep it pretty low-risk since it is short-term. Save a little into this new account each month and use it for the fun stuff…whether that’s a trip to Paris, a kitchen renovation, or your dog. Not having to go into debt to pay for a vacation is an amazing feeling and you’ll feel a whole lot less guilty about it.

10. Celebrate!!!

You’re done, way to go! While many of these steps are a lifetime commitment, you’ll find that everything flows a lot better and won’t take much brainpower once you have it all set-up. Now you get to reap the rewards of your hard work and use that short-term savings account for whatever you dreamed up. Happy spending!

What step in organizing your finances are you on, and which do you think is the biggest challenge? Feel free to share your experiences in the comments and help motivate everyone else 🙂


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6 comments

  1. I love itttt! Especially about making an estate plan. None of us know when we’re going to pass away; it’s so crucial to get everything in order, no matter how old you are. It *will* leave a mess for your loved ones if you don’t make arrangements.

  2. Solid plan!

    I don’t have any life insurance, and did a hard decline on the insurance on my credit card. But I have no dependents, I have a pretty good chunk of dough saved up, and my immediate family isn’t wanting for money.

    I definitely agree with having estate plans, ESPECIALLY if you have children. I’d also suggest talking with them in kid-friendly terms, so that they have an inkling of an idea what would happen if anything happened to you. It might just help make a stressful situation a little less terrifying.

    Thanks for the post!

    1. I’m in the same boat with the life insurance, it’s just not necessary at this point and I think that’s fine. There’s a time and place for it but if you do need it then it’s important.
      And I like the idea of talking to even younger children about what would happen in the event of your death. It’s not a fun conversation but worth it in the event that something does happen.

  3. These are awesome! I’ve admittedly done them out of order–sometimes with zero consequences and sometimes with those consequences being large. But they’re all so important!

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