Tuesday, January 30, 2007

Organization 101

This is the mantra of Food Network star Alton Brown, but it applies to finances as much as food.
Organization will set you free.

You financial house should not only be in order in the monetary sense, it should be in order in the physical sense. Business receipts and bills don't belong in a pile in a shoe box. When tax time rolls around, you should be able to hand your tax preparer what he or she asks for in less than a minute.

Service providers are not perfect. Banks are not perfect. If something looks off on your gas bill, you should be able to pull up a full year's back bills and compare your usage levels to the bill you are questioning. You should have all of your ATM receipts ready and organized when your bank statement comes in, and you should reconcile your bank statement with your records every month. Many debit card based money thefts start with the theives stealing small amounts and then, if there's no reaction, they drain the account. If you have all your records and you reconcile your statements, you'll be able to catch the small amounts and alert your bank. If you try to reconcile your statement and you can't find your ATM records, you're going off memory, and that allows a lot more to slip through.

For the Small Business Owner
Don't, absolutely positively do not, keep your personal finances in the same place/container as your business finances. At all times, you should be able to pull your business financial paperwork out without touching a single personal bill or receipt. You do not want to be telling an IRS auditor that you included your daughter's ballet lessons as a business expense because you didn't have time to sort your bills.

Now, this doesn't mean you have to be absolutely anal and file everything the second it comes in, but you should have a system. Get an accordian file or a plastic filing case and label each section with a type of bill or statement and once a month or so file your various bills in their appropriate sections. One day sit down for five minutes and mark your calender for the entire year with the day big bills are due, like car and house payments. Put your tax paperwork for each year in one folder, clearly labeled, and keep all the folders together. Put bills to be paid in the same place every time they come in so you get in the habit of looking at the same spot every day to see what's due.

If you want to take it one step further, create a spreadsheet of bills and expenses for each month and record your expenses by category, such as food or utilities, and have a spot to put in your income after tax withholdings. Each month total your expenses to find out what you spent where and if you made enough to cover it. Do this for every month for a year and give yourself an idea of what you spend the most on, how much you save after spending, and where you need to make cuts in your spending. This will give you a good idea of what to budget and what to change for the next year.

Remember, organization will set you free.

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