3 Simple Steps to Organizing Your Financial Life in 2021


The beginning months of a year are a great time to start or continue organizing your financial life. My previous posts talked about Covid-induced motivation to be more engaged in your family’s finances and how to effectively start the conversation with your spouse.

Hopefully you and your spouse are on the same page (or getting there…). Now it’s time for the next step: Organizing your financial life together.

Let’s get started by preparing your personal financial statements, i.e., review your cash flow and creating a personal balance sheet (net worth statement).

Step 1: Review Your Cash Flow

Do you know the approximate amount of your NET annual income (the amount that lands in your checking account after taxes each month multiplied by 12). AND the approximate amount of your annual expenses? If yes, awesome! If not – first, look at your most recent paycheck to find your net income and multiply that by the amount of your pay periods per year.

Then, start gathering information to understand your expenses. Print the last 3-to-6 months of your bank statements and credit card statements. Most credit cards prepare an annual spending report sorted by category, which is also a helpful place to start.

Next, review the numbers and create a simple Excel spreadsheet to tally them or try out personal budgeting software (Simplifi is my new favorite). If using Excel, break up spending into categories (home, car, life) under two headings: (1) fixed expenses, bills for necessities that cannot easily be changed and cost the same or about the same each month (mortgage, car payments, student loans, groceries, gas), and (2) discretionary expenses, bills that are nonessential such as dining out, entertainment, recreation and travel.

Finally, add up all of your annual expenses and subtract the total from your annual net income to find your net annual cash flow – TA DAH! This big picture view of your spending can be eye-opening.

Now, without judgment or criticism of yourself or your partner (this can be tough, but you can do it!), take a moment to breathe then do your best to lovingly and honestly discuss:

  • The difference between your income and expenses – is it positive or negative?
  • Are you living within your means? Where can you save more?
  • What spending do you get the most joy from? The least joy from?
  • Is your current spending in line with your short-and long-term goals and values, as individuals and as a couple?
  • What do you want to work on and do differently going forward? Do you need your spouse to help you stay accountable?

Step 2 Create a Personal Balance Sheet (aka Net Worth Statement)

A personal balance sheet provides a snapshot of your current net worth, which is the sum of adding up all of your assets (what you own) and subtracting all of your liabilities (what you owe).

Here, you can again use Simplifi or an old-fashioned Excel spreadsheet.

  1. List the current value of all of your assets from highest value to lowest value. Typically your house, retirement accounts, investment accounts, bank accounts and cars. This list may also include life insurance cash value, savings bonds, stock certificates, fine art, jewelry or antiques and cash stuffed under a mattress.
  2. List all of your debts which may include mortgage, car loan, student loan, credit cards and personal loans.
  3. Add up the value of everything you own and subtract if from the value of everything you owe. TA-DAH, this is your current net worth.

Step 3: Putting it All Together — Combining Cash Flow & Net Worth Statements

Cash flow statements and net worth statements combine to provide you with information to make better, more informed financial decisions. Reviewing your cash flow helps you pay down debt and find places to save more, which increases your net worth. Reviewing your net worth motivates you to save more and pay off more debt, which increases your cash flow.

I recommend preparing both of these documents at least annually and reviewing every 3-to-6 months. Schedule the dates on your calendar in January to kick-off a new year, in late-April after your tax return is filed and once again in September before the holiday rush.

No matter where you’re starting from, you’ll be amazed at how much easier getting your financial life in order as you get into the habit of monitoring your cash flow and net worth. And I recommend keeping track of these improvements to further motivate you down the path to your ideal lifestyle.

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An upstate, NY native (Fayetteville to be exact), I settled on the NH Seacoast in 2011 after living in Portland, ME, Boston, Lake Tahoe, CA and Burlington, VT. I’m a lawyer-turned-financial planner at Charter Oak Capital Management who loves helping singles (by choice, widowed, or divorced) and couples organize their financial lives and plan for the life they imagine. My husband Dan is co-founder of a renewable energy company and we have three girls ages 9, 7 and 2. Our family loves the outdoors and spends a lot of time in Rangeley, Maine -- hiking, skiing and biking. I’m an avid reader, podcast listener, home organizer and gardener. I love all kinds of music and smart comedy (a la Midge Maisel). And in the event I find spare time, I beeline to my hammock or the couch with a book.