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Give Your Financial House a Solid Foundation

May 31, 2018 5 min read Ben Gran

Key Takeaways

  • It all starts with getting organized (and staying that way).
  • Set a budget, pay off debt, and start building savings.
  • Create a vision for long-term goals like retirement and estate planning.


Managing your money is not just about having a budget, it's about managing the overall structure of your financial life and keeping it orderly. Achieving financial security involves numerous aspects of money management, including avoiding excessive debt, saving for retirement, and leaving a legacy.



Here are a few strategies that will ensure your financial life is on a solid foundation.

Organize your paperwork

Many people go through life merely working and spending money, without ever taking the time to sit down and evaluate their financial situation. This is a mistake. With just a few hours of focused effort, you can get organized and improve your financial outlook.

Start by organizing your financial paperwork. Keep your tax returns for the past seven years (in case of IRS audits, questions from lenders or tax preparers, or just for your own reference). This includes any pay stubs or canceled checks from that seven-year period.

Also, keep any financial documents related to buying, selling, or improving your home. You might want a safe deposit box or fireproof safe for your mortgage documents, title deed, and any other relevant information that is hard to replace. Buying a home is the biggest purchase of most people's lives – don't run the risk of costly complications by losing paperwork.

Finally, keep any receipts and records for major purchases, for as long as you own the item. This includes cars, major appliances, water heaters, furnaces, or any specialized equipment that might require repairs or maintenance, especially if there is a warranty involved. Keeping your paperwork orderly can help you avoid expensive fees and delays in case you ever need to request repairs under warranty.

Live within a budget

The word “budget" often gets a bad reputation. People might feel like living on a budget is a form of deprivation and denial of joy. But having a budget can actually help you feel more relaxed and liberated. A good budget will give you confidence in your financial status by keeping track of spending, managing and eliminating your debt, cutting back on unfulfilling impulse purchases, helping you better plan for retirement, and most of all, it will give you the sense of empowerment that comes from knowing how to boost your savings for your most important financial goals.

A simple way to set a budget:

  1. Add up your monthly income. For most people, the major of income is derived from a job or business. But don't forget other sources of income like child support, disability wages, side income from part-time work, freelancing, or a part-time business, income from investments, government benefits, etc.
  2. Add up your monthly expenses. Pay attention to where your money goes for one month. (If your expenses vary significantly from month to month, combine a few months and calculate a monthly average.)
  3. Set financial priorities. Evaluate your fixed expenses (must-haves that are the same every month, such as mortgage/rent, food/groceries, utilities, transportation/car payment and gasoline, insurance, property taxes) and variable expenses (nice-to-haves that are within your control to decide whether/how much to spend, such as entertainment, vacations, hobbies, sports, meals away from home, etc.). Cutting back on your variable expenses is often the best way to find extra money for savings and paying off debt.


Manage debt

Household debt is common, whether it's due to student loans, a mortgage, car payment or credit cards. Debt in itself is not a bad thing, and some types of debt are more expensive and risky than others. The key is to avoid an unmanageable level of debt that burdens your overall financial foundation. Here are a few easy steps to take to pay off debt:

  1. Pay off highest-interest debts first. Credit card debt is usually the highest-interest debt that consumers have. If you have balances on multiple credit cards, read the fine print on your agreements and make bigger payments to the cards with the highest interest rates.
  2. Build on the momentum. As you start to pay off higher-interest cards, keep the momentum going – take the money that used to go to a paid-off card and compound it into your payment toward your next highest outstanding balance.
  3. Consider debt consolidation. Depending on your credit score, there might be a few options to help you consolidate your credit card debts, such as using a balance transfer to open a new credit card account with a limited time promotional interest rate, or getting a home equity loan to pay off your credit card debt with a lower-interest loan backed by the value of your home. However, there are risks and possible costs that go with debt consolidation. Make sure you're ready to pay off your debt on schedule to avoid penalties and account for balance transfer fees.


Build your savings

Even as you pay off your debt, you should be boosting your savings. Financial security is based on having enough money in savings to help ride out times of uncertainty while also investing for long-term goals. Key elements of your savings plan should include:

  • Emergency fund — Set aside three to six months of living expenses in a safe, easily accessible account like cash savings/checking, money market fund or government bonds.
  • Financial protection — Sometimes life presents challenges and hardships that can't be solved with the money in your savings account, this is why you need insurance — property and casualty, medical insurance, life insurance, disability income insurance, and long-term care insurance.
  • Big-ticket savings — Set up a special savings account for big-ticket items like a new car, new home, dream vacation, and more.
  • Retirement — Save for your own long-term financial security. Pay yourself first, out of every paycheck, and use the money to save for retirement.


Leave a legacy

Financial planning is not just about ensuring a comfortable life today or in retirement – it's also making sure your family is protected after you're gone. Estate planning is a good idea for anyone who has a family, and for anyone who has financial assets – a home, retirement savings, valuable family heirlooms, etc. – that might need to be distributed to heirs in accordance with your wishes. Planning in advance can help simplify the process and avoid family conflicts or complications after you're gone.

A few key questions to consider with estate planning:

  • Who should inherit your assets, which assets, and when?
  • If you have children or dependent adult family members with special needs, who should be their guardian in the event of your death?
  • Who should make decisions about your health care and finances in case you become disabled?
  • If you own a business, who will inherit it in the event of your death?
  • Are your family members capable of making good financial decisions after your death, or would you prefer to put financial assets in trust, with professional managers?

Writing a will and establishing an estate plan – even if you are not wealthy – is a good idea for anyone who wants to leave a financial legacy and help ensure that their family can enjoy a measure of peace and stability, even in the event of an untimely death.

Getting your financial house in order is not just about organizing your current finances and setting a budget; it's about taking a long-term plan for the total picture of your financial life. Budgeting, insurance, investments, and estate planning all are part of this process.



What you can do next

Get organized by creating a central repository for information on all of your financial accounts — checking, savings, investing, insurance, and legal documents. As you go through the list, ensure you have current login information and determine which areas need attention or updating.


Please consult your tax and legal advisors regarding your particular circumstances.



Ben Gran is a freelance writer based in Des Moines, Iowa. He writes about personal finance, financial services, technology, and business.


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