Five simple steps to organize your finances

Simplicity is the hallmark of intelligence. I don’t know who said that, but it is very much applicable in the field of personal finance. Unnecessary complexity causes most trouble, pain and missed opportunities.

Many financial coaches and gurus have talked about taking steps to improve your finances. Some of them are called baby steps, knowing your latte factor or running your finances like a company.

In this post, I am going to cut down all that fluff into Five simple steps. That’s all you need to organize your finances and get started to a path of financial freedom and wealth building.

These steps may sound very simple and oft-repeated in the mainstream media on personal finances. However the key is to implement the steps in a sustainable and simpler way.

Budget your expenses

This is often a mis-understood step and a put off for most people. Budgeting invokes visions of stinginess, accounting and daily tracking – something most people hate to do.

It is like teaching complex mathematics to a middle school student. If you ask the student to solve problems without understanding the practical application of it, it will all seem like a maze of formulas and unnecessary hard work. Every good teacher knows that application is the best way to teach any subject.

That means keeping the end goal in sight and simplifying backwards from there.

Budgeting if looked from the same lens, do not sound so boring.

The ultimate goal of budgeting is to save money, invest it, add to it regularly and take steps towards financial freedom. All while having fun and living life along the way.

Do you still feel it sounds like boring accounting? Stay with me.

The way to achieve a simple budget is to look at it top down and not daily accounting. If we look at the end goal, the purpose is to save a portion of every paycheck. Once you decide to save 10%/20%/30% of your paycheck, there is nothing much to think about. Remove that part from your paycheck, both physically and mentally.

The remaining is your living costs – housing, transportation, utilities, food and fun.

You can similarly break down the rest – for example, take out the mortgage, utilities and other fixed expenses into another chunk and leave the rest for variable expenses.

As you start putting buckets for expenses, it becomes more of a mental game than a number crunching exercise.

Setup an emergency fund

How can financial advise be without this? Aren’t you tired of hearing this?

This is like the “exercise regularly”, “health is wealth” kind of advice. Everyone gives it but very few follows it.

The main challenge of setting up or maintaining an emergency fund is to draw the boundary. You have set aside some cash for a rainy day. Now the question is what is a rainy day?

Every small excuse of spending money or a difficult month will reach towards this fund and spend it.

On the other hand, if you make it too difficult to access then it will not be useful in a true emergency.

This combination of liquidity and hard to spend requirement is contradictory and is the main cause of draining the emergency fund.

There are several ways this can be achieved.

  • Save it into another account, which is outside of your normal day to day banking activity. However it should still be accessible at the click of a mouse.
  • Put the money into a Fixed Deposit or Certificate of Deposit. That way, it is safe but may incur penalty when withdrawn prematurely. Note that in a true emergency, the penalty is the last thing to worry about, as long as it is losing some interest or even a minuscule portion of the principal.
  • Have an account with a joint signature requirement with your spouse/partner, so that one person’s emergency can be rationalized by another. However most often, both partners can go wrong like in the case of buying something expensive (cars, vacation, house) which could have waited.

There is no one way which is better or simpler.

You really have to know yourself, and set it up to work against your worst enemy, which is yourself again.

I normally take the fixed deposit approach, as losing money (even if it is future interest) makes me think twice. It is a small deterrent but nevertheless, having that small kick in your mind is all that you need.

Pay off consumer debt

It is simple – stay out of debt as much as possible.

Debt is like drugs or alcohol. It takes you higher and higher (it is called leverage for a reason) and then if you are not careful, drops you hard on the ground.

I am not a debt-hater like Dave Ramsey. Debt is essential for the economy and businesses to improve their services and grow.

In personal finance, however, debt has to be managed very carefully. Consumer debt, which has a very high interest (10% and much higher annually) needs to be killed every month.

Credit cards are ubiquitous and have some operational advantages. Like fraud protection and convenience of managing cash flow when the actual money is circulated or expected later. I don’t get excited about the other perks like cash back and points, since those are usually baits to make people spend more on the credit card and remain in debt.

The answer to this step lies in the Budgeting section. Once you know, how much you are going to spend in variable items, the credit card monthly limit can be set accordingly.

Most people do not like to set hard limits on their credit card, since that signifies less security. What if there is a situation when I need to spend more, just that one time?

The answer to that is treat a second card like an emergency fund card. Keep it at home but accessible if required in case of an urgent purchase. These two credit cards should be enough for most people.

Start the simplest investment

Investment is another area, where we love complexity. This is when we start talking about chart busting returns, asset classes like cryptocurrency and strategies for beating the market. What better grown up gossip than hot investment tips, momentum stocks and futures and options?

I like Charlie Munger’s advice here. Most people should start with the assumption that they know nothing and are really stupid when it comes to investing.

Then the goal of investing should be to avoid the most common stupid mistakes.

The common stupid mistakes are:

  • Timing the market and getting carried away in a bull market.
  • Investing in something which is hard to understand.
  • Not calculating the downside in the euphoria of the upside.
  • Paying high fees over a long term when the fees sound low in the short term – only 2% per year.

There are many more but it is easier to stick to simple principles than listing down all complicated methods.

The simplest investments for most people will be low cost Index Funds, Fixed Deposit and Real Estate (Home).

All 3 are easy to understand, provide an asset allocation and 3 real needs of life – security, safety and growth.

  • Real Estate in the form of home ownership.
  • Fixed Deposit for the emergency fund and short term goals.
  • Low cost Index Funds for growth and wealth creation.

Automate – pay yourself first

We started this post to keep things simple. Automation is the key to simplicity, so that you can go off and enjoy life.

It is not a good use of time to crunch numbers for a budget, calculating exact returns on the emergency fund, cash backs on credit card, accumulating more credit cards for perks and looking up investment portfolio every day.

If we can compartmentalize the 4 steps above and then automate them like a mortgage payment, there is nothing simpler than that.

Here are few automation steps that bind all the previous 4 steps.

  • Automatic debit of investment amount and fixed expenses in the beginning of the month.
  • Setting up a deterrent in the emergency fund.
  • Setting credit card spending limits in terms of credit limit adjustments.
  • Auto pay of credit card balance at the end of every month.
  • Setup automatic payment (investment) into an index fund.

Once setup, enjoy your journey towards financial freedom.


Personal finance has to be surprisingly simple and look stupid. It is such a simple setup that works beautifully and builds wealth through automation and forced discipline.

It is the AI for managing money.

Photo by Markus Winkler on

3 thoughts on “Five simple steps to organize your finances”

  1. I completely agree. A lot of times, complicated steps stop us in even starting. I am sometimes guilty of overthinking where to go, to end up not going anywhere. Make sense to follow simple but reliable steps if it takes you to the same goal. Appreciate the reminder!


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