5 Tips for Spring Cleaning Your Finances
Reginald A.T. Armstrong • Financial Wellness
Getting your financial house in order is never a simple one-and-done task. Your finances require ongoing attention and care. As your circumstances change and time passes, it’s essential to keep a close watch on your money and make financial adjustments as needed. Taking your eye off the ball can lead to careless oversight, letting important details slip through the cracks, and leaving your finances vulnerable to snowballing problems that could’ve been prevented.
While more frequent reviews are a must, it’s imperative to take a deeper dive into your financials at least once a year. You should do a spring cleaning of your finances to make sure you are managing your budget and cash flow correctly. Think of it as going a step further than keeping things tidy and clearing the clutter.
Here are 5 tips for spring cleaning your finances.
One of the easiest and most impactful steps you can take to improve your finances is to get organized. Having your financial information saved and arranged in an orderly, systematic manner will help you access, track, and handle your finances responsibly without getting overwhelmed or caught off guard.
Doing things like staying on top of bills, paying down debt, and managing your investments becomes less of a chore when your finances are organized.
Start by gathering and reevaluating all of your important documents and account information. Come up with a simple storage and filing system—digital and physical—that will enable you to find what you need when you need it effortlessly. If you have an existing system, use your spring cleaning time to get rid of old items you no longer need and update what you do need.
Review Your Budget
Without reviewing your budget regularly, it’s easy to drift off track when it comes to striving towards your financial goals. While you should be tracking your spending, keeping a close watch on your cash flow, and tweaking your budget throughout the year, you should also take the time to carefully reassess your budget annually, looking for ways to improve.
Go back through your budget for the past year and take a look at where you did well and where you fell short. Perhaps you decided to put off getting new appliances for another year, which was a win. But you went out to eat too often, which was a loss. Maybe you didn’t save as much as you planned, but you slashed your debt significantly. Were there unexpected expenses for which you need to better prepare in the future?
The purpose of reviewing your budget is to look for where you might want to tweak it and reallocate your money to get you closer to your goals.
Plug the Leaks
A harsh reality is that far too often, financial dreams are dashed when people who make a sufficient income are careless with their money or succumb to lifestyle creep.
When looking over your financials for the year, get honest about spending habits that are detrimental to your finances. Look for patterns of frivolous output and see if you can identify ways to curb unwanted behavior.
Not only that, but also look for money that’s flowing out unnoticed; it’s common for people to pay for unused memberships and subscriptions that are costing them thousands of dollars a year. While you’re at it, check your credit report for errors that could be lowering your score and costing you money in higher interest rates.
Are you paying too much to keep an unreliable car on the road because you’re convinced that you don’t need a newer vehicle? Are you still paying for your adult children’s cell phone bills and car insurance? Are you throwing elaborate dinner parties you don’t even enjoy just to keep up with the Joneses? Maybe it’s time to reconsider.
For many people, debt is the biggest drag on their finances. While some debt, such as a mortgage, is unavoidable and a simple fact of life for most, things like credit card debt, medical bills, and student loans can spiral out of control, particularly when consumers fall into the trap of making only the minimum payments.
The growing interest on unwanted debt balances can become your biggest obstacle to working towards your financial goals. As you assess your finances for the year, it’s a good idea to come up with a plan to do whatever you can to pay down your debt. Otherwise, you’ll be looking at the same balance or higher when it’s time for next year’s spring cleaning.
The more aggressive you can be in managing your debt, the better. This may require cutting your budget drastically or finding additional sources of income. In the long run, getting out of debt is one of the best things you can do for your finances.
Boost Your Savings and Investments
As you work on sprucing up your finances for the year, take another look at your approach to saving and investing. If you haven’t already set a monthly savings goal, what are you waiting for? You should be paying your savings and investment accounts just as regularly as you pay your mortgage. Building wealth doesn’t just happen; it requires disciplined savings and investing.
Do you have enough cash on hand for an emergency fund? If not, that’s your first step. A rule of thumb is to have at least six months of living expenses liquid in the bank.
Are you looking to reach financial independence within the next few years? If so, you need to make sure you’ve set your savings targets accordingly and that you’ve worked with a financial advisor to create passive income from your investments.
Are you on track for retirement? Make sure you are at least taking advantage of the maximum matching contributions through your employer retirement plan, if applicable. If possible, see how close you can get to maxing out your retirement plan contributions. This may also be a good time to rebalance your portfolio.
Until Next Year
Spring cleaning your finances, like spring cleaning your house, can be a big job, but it’s worth it, as it helps to bring a sense of accomplishment, calm, and comfort.
Maybe during your last round of spring cleaning, you weren’t in a position to bolster your net worth, but this year you can see progress. Maybe you’ve had some hiccups, and you’re working to recover. Either way, you can clearly see where you stand and build from there.
Every year, your circumstances and needs will change. Taking the time and making an effort to spruce up your financial picture can help you meet your short-term, mid-range, and long-haul goals.
By taking the steps we’ve covered each spring, you can clear a path and chart your financial course with confidence.