When it comes to spring cleaning, you may think about your garage or even your closet. What you may not consider is your finances.
When’s the last time you really took a good look at them? What if you could get a better interest rate or cut reoccurring bills to save money?
While you’re cleaning the windows and tossing out old clothes, now is also the perfect time to spring clean your finances and get your financial house in order.
Review Your Financial Goals
Has your financial situation changed in the last year due to some life changes? Maybe you had a baby or maybe your kids just graduated from college and moved out of your house? It's a good idea to make sure that your current financial goals fit your current life.
And if you don't have any financial goals, sit down with your significant other and map out some financial goals that you'd like to achieve in the next year, five years, ten years, and beyond.
Do you want to be debt-free? Do you want to pay for your kids' future college expenses or save for a big purchase? How much money do you want to have in your retirement account? Or maybe it's just as simple as where do you want to go on vacation next?
Plan out both short-term and long-term financial goals so you're both on the same page.
Create a Financial Inventory
Just like you would have a home inventory for insurance in case of a tornado, fire, or flood, you want to have a financial inventory. If you already have one, make sure you review it to update any changes over the last year.
What's Included in a Financial Inventory?
You'll want to have a list of all your financial assets and liabilities as well as any wills or trusts. In case something happens to you in the future, you'll want a record of everything that your significant other (or family) can access to easily find the information they'll need to carry on.
Your assets include things like your home (deeds and titles), rental properties, vehicles, bank accounts, college savings, retirement savings, insurance policies, any valuable property (like jewelry or art).
Liabilities include all debt such as a mortgage, auto loans, credit card debt, personal loans, etc.
Make sure you include all practical information such as the company, account numbers, and even passwords to access your account online.
Check Your Credit Report
Each year, you should check your free credit report using the website annualcreditreport.com. You can get a free report from each of the three credit bureaus.
Check that your information is accurate. If you paid off a debt, did it disappear from your report? Is there anything on your report that you don't recognize that could be from identity theft?
Dig deeper and clear up any discrepancies on the report long before you may need to use credit.
Declutter Your Accounts
There are a number of things you can consolidate, like your bank accounts.
Do you really need ten savings accounts? Probably not. You could keep a spreadsheet with line items for various sinking funds and keep all your savings in just one bank.
If you have credit cards, do you really need ten different cards? However, if you're concerned about your credit score, be careful closing credit card accounts since it can lower the amount of credit available to you (and thus potentially lower your credit score).
Review Your Budget
As part of your financial spring cleaning, be sure to review your monthly budget. Are there any budget categories that you can cut? Or do you need to adjust some categories up?
Just be sure not to go extreme on cutting various categories. They need to be realistic and something that you can stick to each month.
It's not likely that you'll be able to live on $50 a month in your food category, so you'd likely end up going over budget each month if you make unrealistic cuts.
It takes time to tweak your budget so that it works best for you and your family, so don't think you'll be perfect the first time.
Get Rid of Bad Spending Habits
Have you ever wondered how much you’re spending on those “must-have” items?
Take the time to track those unnecessary expenses to see how much money you’re really spending. For example, a cup of coffee at your favorite café each morning and a fast food lunch is only around $10 a day. Big deal, right? Not exactly.
Think about how just $10 adds up over a 50-week work year. That’s $2,500 a year for just a cup of coffee and a greasy burger and fries. You could take a vacation for that (or pay off debt)! This spring, get rid of those expenses that are eating up your income.
Cancel Subscriptions You Don’t Use
Look over your credit card statements (or bank statements) and ask yourself if you’re using each service you’re paying for. Be honest about whether you're really getting value from the amount that you're paying each month.
Are you really using your Kindle Unlimited subscription? Could you get by with the thousands of free books that are available without a subscription?
Are you using every TV service you’re paying for? What about that gym membership? Cut anything you don’t use.
Catch Up on Late Payments
Are you behind on any bills? Make a list of all past due payments and work to get all bills caught up and current.
Pay Off Debt
Another great tip is to pay off your debt once and for all. Sit down and look at how much you owe. What would it take to get you out of debt?
If it’s $5,000 or less, you could probably come up with the money by selling items around your home and doing some side gigs to make a bit of extra money.
If it’s more than that, you may have to look into some serious sacrifices of your time and fun money for a period of time.
List your debts from smallest to largest (or from highest interest rate to lowest interest rate). Then, pay each debt off as quickly as you can. As soon as you pay off an account, close it, and you'll never need to think about it again! Wouldn't it be amazing to get student loans out of your life once and for all?
Automate Bill Pay
Rather than using mental energy to keep track of bill due dates and whether they're paid already or not, create a system for paying your bills.
Perhaps you can set up automated bill pay for as many bills as possible. You can also keep a planner where you list each bill by its due date to make sure they all get paid on time.
Take this time to evaluate how your bills work with your paycheck. If you get paid twice a month, you don't want all bills to come due right after your first paycheck.
Try to spread out the due dates throughout the month so that they can easily get paid. Many companies are willing to work with you and move the due dates to a new date in the month.
Toss Paperwork You No Longer Need
Paperwork is one of the worst things to deal with when spring cleaning. It seems to slow you down as you’re trying to get your cleaning done. Instead, gather it all up and go over it all at once and create a personal finance filing system that works for you.
Toss anything that you no longer need. Some paperwork needs to be kept a few years for tax purposes. Other things, like bank statements, can be scanned and stored electronically. Just make sure to have a backup of your backup.
If you can sign up for paperless billing or access your account online, do it. The less paper to deal with, the better. Just make sure you have a good organizational system to pay all your bills each month if you normally rely on getting the bill in the mail as a reminder to pay.
Clean Out Your Wallet
While you're at it, you can literally clean all the junk out of your wallet and set up a system to keep it clean going forward (like a weekly or monthly clean-out).
Do you really need to keep all those receipts in your wallet? For receipts that you do need to hold onto, create a filing system to keep track of them.
Get a Better Bank Account
Last, but not least, while you spring clean your finances, look into different banks. You want a bank that has zero fees and good interest rates. Always read the fine print so there are no hidden surprises down the road, such as a minimum balance.
Also, if you can find a bank that also has purchase alerts for large purchases, that's just another measure of protection for if (when) your account number gets stolen and is used fraudulently.
Create a Home Inventory
Do you have a home inventory in case your home ever gets destroyed by a fire, tornado, flood, or some other catastrophic event?
You'll thank yourself when you have documented evidence of the contents of your home for insurance purposes. Make sure it's up to date, too.
Comparison Shop Regular Expenses
Once a year, think about comparison shopping for regular expenses like homeowners/renters insurance, auto insurance, your cell phone plan, your internet plan, cable/satellite TV service, and other service providers like pest control, lawn service, weed control. See if you can a better deal on those services.
If building your savings is one of your financial goals, can you automate your savings to get closer to your goals?
Set up a reoccurring transfer from your checking account to your savings account each month when you get paid so that it's a part of your budget that doesn't get forgotten.
Make sure your retirement or college savings is set up as an automatic transfer each month. Or, set it up with your company to transfer money to your 401(k) from each paycheck.
Reevaluate Your Emergency Fund
Take this time to evaluate how much money you have in savings for your emergency fund.
Have your expenses gone up or down? Do you need to keep as much money in your emergency fund? Did you end up using some of the money for an emergency and now you need to build it back up again?
Double-check and make sure you have three to six months of expenses in a savings account for any emergencies that may come up.
Did you get a huge tax refund this year? Or, perhaps you owed a lot of money to the IRS? Take this time to figure out the correct amount of money that needs to be withheld from each paycheck and adjust your W4 with your employer. Check with your tax professional if you need help.
Check Insurance Coverage
Do you have enough insurance coverage? Review all your insurance and make sure that you are fully covered.
Did your salary increase at work over the years? Make sure that you have increased your life insurance term policies also. Also, double-check that your beneficiaries are correct.
The same goes for your auto and homeowners/renters insurance. Double-check that you have the correct coverages for your situation. You can make an appointment with your insurance agent(s), if necessary.
Plan for Your Future
If you have retirement or college savings, review if you're on track with your future goals. If not, figure out how to increase contributions.
How are your assets invested within your savings accounts? Review your investments with your financial planner and make sure that your asset allocation works for your current life situation.
Double-check the beneficiaries on your account to make sure that you have the correct person listed on your account in case of death.
Calculate Your Net Worth
And finally, as part of your financial inventory and spring cleaning, you can calculate your net worth (which is your assets subtracted by your liabilities) to make sure that your net worth is increasing each year and not going backward.
Spring cleaning your finances probably wasn’t on your to-do list. However, it can make a big difference in your life. Take the time to spring clean your finances this year.
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