#11: 6 Helpful Tips to Organize Finances. Interview with financial coach Lydia Ophaug.

#11: 6 Helpful Tips to Organize Finances

Some people can make a lot of money and have their finances disorganized (or at least in need of improvement), while others can have a low income and be incredibly organized. But how do you organize finances, and where do you start? This episode features a special interview with Lydia Ophaug, a Dave Ramsey-certified financial coach, who offers six helpful tips to start organizing your finances today.


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Transcript

This is the Neat Lifestyle Podcast, episode number eleven. In today's episode, you'll get six helpful tips to organize finances, so stay tuned.

Welcome to The Neat Lifestyle Podcast. My name is Katia Mesquita. I'm a personal organization expert, an online business entrepreneur, and your host on this weekly variety show. I'm excited to bring you an extra dose of inspiration to become more organized, stay organized, and make things work better for you. My goal in this podcast is to help you achieve a more functional, harmonious, and meaningful life. I can't wait to connect with you today. Thank you so much for tuning in, and now let's begin. Hello and welcome to The Neat Lifestyle Podcast. Thank you so much for tuning in today. I'm your host, Katia Mesquita, and to have our lives more organized, we must also organize our finances. But how are your finances? Organized? Under control? 

Let's find out together because getting our finances more organized, give us more peace of mind, more joy. We sleep better. We have that calmness that allows us to live the moment and enjoy what really matters most. And if you or someone you know needs some improvement in this area, you should definitely check out today's episode because we will get extra help and tips and, finally, some light at the end of the tunnel. Today, I have a special guest for an interview. We are going to talk about the essential tips, things that are really tangible, simple, and doable. And for those who usually feel a little bit uncomfortable discussing about finances, especially those who might be experiencing some pain or anger or any sense of guilt regarding their current financial situation, I really encourage you to have this as your big opportunity to face the problem. You are not alone. There are many ways to get help. There is always hope. There is always a way out and facing the problem is the very first step to the way out. And you can start it right now! 

But before I dive deep into the interview, I just want to make a disclaimer. What we are discussing in this episode are general financial good practices for informational purposes only, and it's not intended to be personal financial advice, okay? Now, back to the episode. Today, I have a special guest for an interview. She's a Dave Ramsey's certified financial coach with 20 years of experience in finance, and she came to our studio to give us some tips on organizing finances. So, ladies and gentlemen, I'm so excited and pleased to introduce you to this person I really admire, Lydia Ophaug! Hi Lydia, thank you so much for taking some time to be here with us today. How are you doing? 

I'm doing great. I am so excited to be here, and I love talking about finances and organizing them. That's a topic that's near and dear to my heart. 

Okay, so Lydia, one thing that I noticed is that regardless how much money a person can make, some people can make a lot of money and have their finances completely disorganized or at least in need of improvements, while other people can have low income and be incredibly organized. So, first of all, what's your best definition of finances, and how can we identify whether we have our finances organized or if we need some improvement in this area? 

Sure. So the first answer to that, I'm going to do it in a couple parts, the first is the way I define finances. It's the management of money, whether it's personal or for a business. Some things that one should ask oneself: Are you covering all of your expenses? Do you have monies left over each month for saving or investing? Or maybe if you're a business buying additional equipment? Do you have goals that require you to save monies to achieve them, such as a home, a vacation, or a car for personal reasons? And then, if you're a business, do you need to make investments in your business? Do you need to acquire inventory or perhaps invest in software? So, those are the ways that I would define your finances and how you're managing your money.

In terms of identifying whether finances are organized or you need improvements, a couple of thoughts come to mind. According to Dave Ramsey, you need to cover the four walls. And those four walls include food, utilities, shelter, and transportation. That makes up your four walls. Those are the four pillars. The next thing is: Do you have an emergency fund? Especially if you have debt, do you have an emergency fund? I would initially start off with a thousand dollars for unexpected life events, and that could be anything. That could be a car repair, you have to put a down payment for something. You always will need an emergency fund because life has a way of throwing unexpected events your way. The next thing would be to save three to six months of expenses in case you're laid off, find yourself without a job, or unable to work for whatever reasons. So you always want to have that initial a thousand dollars aside for emergencies, and then the third pillar would be to chip away at debt. Learn to live beneath your means. Learn to live debt-free. Get rid of credit card debt, student loan debt, car loan debt. And ultimately, I'm a big proponent of paying off your mortgage. So that's what I look at. When you're living debt-free and saving money, that's being organized from a financial perspective.

Okay, just to put it more in the context of our listeners who are not in the US and operate with a different currency, if we don't have an emergency fund for unexpected life events, it would be good to make at least the first $1,000 and then have three to six months of expenses available. How would the $1,000 be represented to them? 

Okay, so I looked at this and just kind of applied some math to it. In the US, the average annual salary in the United States as of May 2024 was $59,428. Now, we have to be mindful because salaries vary by region, by state, by age, and other factors, and I think that those things apply not only within the US but also in other countries outside of the US. But taking a look at that thousand-dollar emergency fund, if you take a thousand dollars and you divide it by the average annual salary of $59,400, this is approximately 1.7% of this yearly salary that you would put aside and save for an emergency fund. If we want to go ahead and apply this to other countries' currencies, we would apply that same percentage to the other countries' currencies, so let me give you a couple of examples. Brazil's average annual salary in 2023 was 8,220 Brazilian Real. If you multiply that times 0.017, it equates to 1,390.7 Brazilian Real. Using the same methodology, Germany's average annual salary in 2024 was 45,900 Euros. Multiply that times 1.7%, and you get 780.3 Euros. So that's how I would go ahead and say that thousand dollars in the US currency would be translated to other currencies. 

Okay, and how to make this assessment?

Sure, I think one of the key things that you have to ask yourself is, on a monthly basis, do you know where your money goes? And can you tell me where all of that money goes each month? What do you spend your money on? It's so important to track every single expense that you make, whether it's food, utilities, childcare, picking up a pack of gum or mints at a checkout line, or magazines. It's real critical that you know where your money goes, and that to me would be a key part of assessment, whether or not you know that. 

Okay, and you have some tips for us, right? 

Absolutely. I have about five to six tips in terms of helping you make your life easier, better, by organizing your finances. Tip number one: You must create a budget for yourself and track all, repeat, all expenses. One way to do that is review a recent bank statement and see what you've spent the last month, the last three months. Create a budget for yourself. So, if your income, whatever your income is, and then all of the expenses that you pay out each month, so that's rent, mortgage, electricity, food, water, childcare, eating, dining, etc. And then another tip is: Dave Ramsey has everydollar.com, a premium version that can connect to a digital app that can connect with your bank accounts, credit cards, and things like that. I think something to keep in mind is that you can't improve what you cannot measure, and that's often attributed to Peter Drucker, and this applies so easily and well when it comes to organizing your finances. 

Okay, and what would that look like for a person who is in debt? 

I think, to me, once you have a budget, right? Regardless of whether you have debt or not, you should still maintain a budget. You really need to list all of your income and your outgoing expenses. And if you're in debt, to me, if you're in debt, once you list your expenses, I would categorize them. Are they needs? Things that are essential to your life, that are essential to living, or are they wants? Things that you desire but are not critical for you to survive. So if you have debt, to me, you would work on reducing your wants, your spending, and funnel that to whatever your debt is, whether that's student loan, credit card, an auto loan, and even ultimately your mortgage. But either way, whether you have debts or not, you should still maintain a budget and if you don't have debt, I would be putting more of that money away to save it for retirement or other long-term goals. 

Another tip that I have, I'm gonna call this tip number three, is to become debt-free. Pay all of your debt, except for the house, one loan, one credit card at a time. One of the things Dave Ramsey teaches is snowball debt reduction methodology to pay off loans. So when you use this method, you choose the smallest loan that you have to pay, and you pay it off. Once you've paid that loan off, you take the money that you were applying to pay off that loan and you use that, you add that on to the monies that you're paying monthly to pay off the next loan. So let me give you an example. I have a student loan that I pay $250 per month. I have a second student loan that I pay $150 per month, and then I have a car loan that I pay $450 per month. So I go ahead, I'm still paying my minimums on student loan two and car loan. I pay off to 250 per month. When I'm done with that first student loan and my last $250, I now take that 250 and the 150 for a loan too, which means I'm now paying $400 per month towards that second student loan. I pay all of that off, continue to hit it hard, pay it off, then take the $400 and apply that to the car loan. So instead of paying $450 a month, now I'm paying 850 a month. And that's an example, a real-world example of snowball debt reduction in order to become debt free. 

Okay, let's jump to tip number four, 

Something that's critical. Over 51% of Americans don't have an emergency fund, and it doesn't matter if you're making six figures, a hundred thousand or above, you still have a large part of the population that still doesn't have an emergency fund and you need to have an emergency fund because life happens. There's always unexpected life events that occur. My initial recommendation, suggestion, would be to save enough money to achieve a thousand-dollar emergency fund. So, if you have nothing, you start off with a thousand dollars. Once you get to that thousand-dollar emergency fund, my next recommendation is to save three to six months of expenses, so you have a cushion in the event an emergency occurs. Falling ill, potentially losing a job, or some other event that occurs where you need to live off of money and you don't have that income coming in, you at least covered those expenses. 

My next tip would be save and invest. And I cannot emphasize that enough. You save for retirement, and you invest 15% of your household gross income for retirement. Most companies in the US, so I'm not sure some countries outside of the US there are pensions, but within the US, most companies do not have a pension. So, individuals have to rely on their own savings, their own way of doing things, finances, in order to have enough money set aside for retirement. And Social Security is not going to cover your living expenses. So, you need to take ownership of that retirement and in order to maintain a good standard of living. And to do so, my recommendation, tip number five, would be to invest 15% of your household gross income for retirement. 

I'm going to say last and certainly not least, is to pay off your mortgage, especially before retirement. There is a mortgage rule of thumb that states no more than 28% of your gross monthly income should be spent on housing mortgage payments. So, think of your monthly gross income being reduced at retirement. That 28% may grow to 38% instead. So, rather than having that worry in your mind and having to think about those things, make a plan, execute a plan that you're paying an extra mortgage payment each year or each month, pay another hundred dollars towards the balance, the principal of that mortgage. That way, later on, you'll have more money from your own, from the monies that you've saved for retirement and you're not paying someone that in terms of interest or things like that. 

Oh, wow. That was awesome. And any final thoughts to consider this episode complete? Any particular books you recommend? 

Sure, I would be happy to share that with your audience. I think I want to summarize the tips in terms of have a monthly budget to track income and expenses, create and maintain an emergency fund. I think that's critical. Start off with a thousand. If you have nothing, start off with a thousand dollars. And once you have that, grow it to six months of expenses. Pay off all your debt, credit card, student loan, car loans, and once you've done that work really, really hard to pay off that mortgage before you retire and save 15% of your household gross income for retirement. So, that summarizes it. I think if you need assistance or you want some books to read, there's Total Money Makeover by Dave Ramsey, there's Baby Steps Millionaire if you want help. He has courses online to help out with this, including Financial Peace University, and it's all about giving someone financial peace by doing those things that are critical in order to lead a debt-free life. 

Lydia, I'm listening to the audiobook version of the Baby Steps Millionaire. 

Oh, very excellent steps. It's a great book, and if you follow the steps and you execute on that plan, you will do well, you'll be well in life, yes. 

Yeah, basically, what he tells in this book is how ordinary people build extraordinary wealth and how any of us can do too, starting with our belief system. 

Okay. That sounds perfect. I'm excited. I'm excited to hear that.

You are incredible. Thank you so much, Lydia, for your time with us and for our listeners, I hope it was somehow valuable, and it can be a good start for organizing your finances, right? I will make sure to put the links to the books on the show notes of this episode. And remember, if you want to try for the first time, the app Audible to listen to the books instead of reading, you can have one of these books for free. I love the audiobook version. It's super convenient. I will give you as many tools as I can, and I know sometimes we may feel like running circles and getting nowhere and episodes like this may give an insight or maybe help you come to the conclusion that enough is enough and we gotta have a more organized life with more significant achievements, more joy with things working better. And a good place to start is my free live training on time organization because when you create time, you are actually making room to organize all the rest. The money situation, the home situation, work situation. Just head over to www.neatlifestyle.com/programs. I can't wait to meet you live. That's all for today. I'm Katia Mesquita, and I'll see you in the next episode. Bye! 

Thank you so much for listening to today's episode. If you liked what you heard today, be sure to share it with those you care about so they can also benefit from it. If you aren't already following me on social media, do so by clicking on the link on the show notes or simply by visiting my website at neatlifestyle.com. I appreciate you so much. I hope you have an amazing day. I'll see you in the next episode of The Neat Lifestyle Podcast.