Marie Kondo’s methods of decluttering and organizing domestic life are famous across the globe. But did you know that you can apply the same method and principles to sorting out your finances as well?
Let’s first understand what Marie Kondo’s iconic ‘KonMari’ method really advocates. The KonMari method suggests that people should tidy their lives by getting rid of personal items that no longer bring joy to their lives – be it books, clothes, furniture, accessories etc.
Here’s how you can apply this tidying method to your finances…
1: Why organize your finances?
When it comes to your bank account, the term decluttering does not automatically make sense. Obviously, you can’t just organize expenses like clothes and discard what you no longer need anymore. What you can do, however, is break down your budget into several compartments. Just go through your bank statements of the past couple of months, study each transaction and slot it into a category. The categories could be simple such as rent, utility bills, groceries, loan payments, etc. This way, you will get a sense of your spending pattern and know exactly where your money is going.
2: Understand your goals
Kondo says “imagine what you want your life to look like”. With your finances, you must identify your long-term financial goals and ascertain how much money you will need for each of them. When you are done, you must allocate money towards every goal and try to set aside around 20% of your income per month to fulfill them. It’s a good rule of thumb to save 1/5th of your income, so you can fulfill your financial goals on schedule. It is also a good idea to open a separate savings account besides your regular current account. You can transfer the savings portion of your income into this account every month and watch it grow over time.
3: Prioritize your savings
Identify your top priority and figure out where other financial priorities lie in your list of short and long-term goals. Once you know how your priorities look like, you will be able to save money and invest accordingly. You must also focus on creating an emergency fund and make it a part of your financial goals. A rainy day fund can provide a financial cushion during unforeseen circumstances and help you stay afloat.
4: End any spending habits that don’t bring you joy
“Keep only those things that speak to the heart, and discard items that no longer spark joy,” Kondo suggests. Kondo’s method of tidying encourages people to clean up their homes by category – like clothes, books, etc. With your financial life too, you must evaluate your spending closely and see if you can discard any habits that do not make a positive difference in your life. For instance, you can stop eating out when you can bring your own lunch to work or avoid stacking up your closet with impulsive purchases. While the idea of joyful spending can be a bit ambiguous, the best way to differentiate expenses is by asking yourself whether a certain expense actually brings you lasting happiness or just momentary satisfaction.
5: Categorize your aspirations
Kondo says that some people may find it helpful to categorize their goals while others don’t. She suggests that people should still give it a try and see if categorizing helps. Try to categorize your dreams by making short and long-term goals. For instance, evaluate whether you need to go on an annual family holiday or spread the vacations out over a span of years so that you can save for something else that’s more important, like your kids’ education or your own retirement.
Try it out, and see how the famous Marie Kondo method can turn your financial management around!