The very idea of making a budget, much less adhering to one, can overwhelm the chronically disorganized. And that kind of anxiety and frustration can make it hard to even think about resolving to get on a better financial footing in the new year.
The good news is that even the checkbook-challenged, filing system-deficient and perpetually messy can take steps to shore up their finances without undergoing a major personality overhaul.
While financial experts often recommend tracking expenses to rein in unbridled spending, it is possible to build a nest egg without detailing every penny spent.
“Most wealth accumulators do not budget, me included, at least in the traditional sense,” says Kahler Financial Group President Rick Kahler, who is registered with the National Association of Personal Financial Advisors. “Here is what they do: Out of every dollar, they take out their taxes, then they take out 10 to 20 percent for investing, then 10 to 20 percent for emergency savings, and finally 5 to 10 percent [to give away] and they live on the rest.”
“You can see that most successful wealth builders learn to live on one-third to one-half of what they make, but they don’t have a ‘budget.’ Doing this type of ‘budgeting’ you get to spend everything in the checkbook. There are no envelopes or categorical constraints, as everything that’s important was taken off the top,” adds Kahler.
The simple strategy, he says, is to remove everything of importance — taxes, insurance, car and house payments, vacation and emergency savings, retirement funds — from the paycheck before it hits the bank.
One way to accomplish this is to have the paycheck deposited into a master account where all payments are automatically debited. One of those payments can be a “what’s left” amount that goes into a second checking account for lifestyle expenses, Kahler says.
Carolyn Bird, assistant professor and family resource management specialist for North Carolina Cooperative Extension at North Carolina State University, notes that an account dedicated only to bill payments may help those who don’t track their bank balances.
“This way a forgotten ATM transaction will not put in jeopardy the ability to pay bills,” says Bird, an accredited financial planner.
As a first step, though, people need to know how much money they are taking home, says Bird. Decide when to pay which bills, based on the timing of payroll deposits, and use the bank’s automatic bill-payment system for fixed expenses, timing the payments so they arrive on time, she suggests. This may require asking the companies owed for a different due date.
“Using this method will reduce the time needed to manage your monthly finances and will help you avoid late fees and bounced check fees,” says Bird, who also suggests checking to see if utilities have plans that average annual usage and set fixed monthly expenses.
Among other tips, Bird recommends setting up the bank account to alert you when your balance falls to a certain point of your choosing, perhaps $50 or $100.
“When your account falls to this balance you know that you have to seriously consider each financial transaction, it might mean ‘no more eating out’ this month. The important thing is to decide what will help you to live within your income and to tailor the alert accordingly,” she says.
Bird also suggests setting up an automatic transfer from checking to savings accounts, starting with an affordable amount and increasing it over time.
While these tactics can help, Bird advocates budgeting.
“These strategies are great steps toward establishing a budget. The budget is a tool that helps identify where the money goes each month. It offers an opportunity to decide if your money is really being spent the way you would like,” she says. “The budget works for you to help you meet financial goals.”
Even the discombobulated need a system — if only a rudimentary one — for storing important financial documents.
North Carolina Cooperative Extension offers resources for handling financial papers. The service recommends homeowners keep housing-related records until they sell the property. Keep credit card receipts until you pay the bill and receipts for larger items as long as you own the goods.
Checking account numbers and copies of canceled checks should be kept at least six years. Income tax returns and proof records should be kept at least three years for a potential IRS audit and six years if 25 percent of gross income wasn’t reported. The extension service recommends keeping initial and current quarterly investment statements, and holding retirement records until funds are exhausted.
If manila file folders aren’t in your immediate plans, there are other options.
“They could consider getting the Mint.com app for their iPhone or iPad and entering and classifying their purchases at the point of sale or daily," says Kahler. "Then they can just throw everything into a shoebox for the year and throw the shoebox out when it’s four years old. Another idea is to scan all their receipts and file them in monthly or categorical electronic folders and then toss the hard copies.”
Categories might include food, health, transportation, home improvements, utilities, loan payments, utilities, education, gifts and vacation.
Another method, Kahler says, is to hire a bookkeeper.
"Give them all your receipts," he explains, "and let them do the filing, keeping and tossing.”