Happy First Anniversary, CliffDweller! And, happy new school-year to the rest of us. Let our annual closet-cleaning ritual begin. As the dawn of another school year approaches, we’re overcome with an irresistible urge to organize our lives… by organizing our kids’ closets.

We relish getting rid of clothes that no longer fit and replacing them with ones that do. Last year’s schoolwork is tossed. Desk drawers are reordered. Shelves are rearranged to meet the needs of our one-year-more-mature child. And, when it’s done, we’re overcome with a sense of satisfaction and calm about the sparkling, cleaned-out orderliness of our child’s closet.

The intensity of our satisfaction sometimes propels us into a frenzied cleaning-out of kitchen cupboards and even garages. But, we always stop short when we reach the closet with the bank statements, credit card bills and stacks of receipts. We leave it alone to fester in its own disorder. It contains all that we loathe, including information that, if we could ever digest and see as a whole, would force us to become… accountable.

Cleaning out this closet is really no different than cleaning any other. We simply start by getting the equipment we need. But, instead of going to the Container Store for matching storage boxes, we stop at Office Max for a money management program. We set it to track our spending and download our bank and credit card statements. By continually feeding in our spending information, our computer can tell us everything we need to know about where our money is going.

Now, it’s time to roll up our sleeves and get to work. We first have to take inventory of what we have so we’ll know what to get rid of, what to keep, and what to get. We do this by creating an Asset & Liability Statement using a spreadsheet program. All of our assets and their values are listed in one column; all our liabilities in another. Net worth is the difference between total assets and total liabilities. We increase our net worth by either adding assets or decreasing liabilities. So, now we can see what we need to get rid of, what we should keep, and what we need to get.  

Next comes the strategy for putting everything where it needs to go. That’s where our budget comes in. It reveals where our money is going. Once we know, we can consider ways of increasing income or decreasing expenses. Using it, we can choose how to best allocate our resources. For example, discretionary expenses could be paced out or foregone entirely. Retirement and college contributions could be made obligatory. Periodically checking ourselves against our budget insures that we’re continuing to put our money away in the right place.

Creating order out of chaos. It’s actually one textbook definition of financial planning. With the proper equipment, a little can-do attitude, and some elbow grease, we can transform the chaos of our finances into the calm orderliness of a financial plan. As our plan helps us to discard unnecessary spending, eliminate debt, and increase saving and investing, we continually increase our net worth. To keep our finances on the right track, we just need to give them a little sorting out every month and a good once-over every year. Now, that’s a happy anniversary.