With the freshness of spring in the air, many of us have set about getting our houses in order –dusting every nook and cranny and getting rid of clutter. As you spruce up your home, consider tidying up your financial house, too.
Now is the perfect time to check in to see where you are money-wise. Maybe you set some goals at the beginning of the year for your finances. How are you doing? Or perhaps you got a nice chunk of change back from Uncle Sam and want to put it to best use. How will you do that?
As you think about these questions and more, consider these five tips to get your finances spring-clean.
1. Organization is key.
If someone asked you to find a copy of your 2012 tax returns, could you do it? I’m guessing most people would answer no. But there is power in knowledge. You certainly can’t keep track of the details of your financial life if you can’t find those details. Knowing where you stand in terms of taxes, credit cards and your credit report is valuable information. So, take some time to gather all of your paperwork and organize it in a way that works for you – whether in a file cabinet or scanned electronically. This tip may sound obvious, but getting organized is absolutely critical to managing your finances.
2. Actively manage investments, insurances, and (once again) your credit report.
Let’s face it – insurance policies can be boring. Who wants to spend one second more than necessary reviewing the details of their coverage? The same is often true of investment accounts or company benefits.
But here’s the thing. Life changes, and as it does, your needs change, too. So, update insurance policies as necessary to make sure you have the right coverage for right now. The same is true of investments and accounts like 401(k)s. Take some time to review your company benefits and retirement plans. Your compensation for work often goes beyond just a paycheck; you want to understand your benefits. While you’re at it, review how much you’re currently contributing to your retirement accounts. Could you do more? As a general rule, it’s good practice to up your contributions yearly, especially if you’ve gotten a raise!
Finally, do a deep dive on your credit report. Even if you have stellar credit or aren’t worried about credit at all, a good rule of thumb is to review your report annually to make sure everything is correct. If you notice a mistake, you’ll need to talk with one of the three credit bureaus to resolve the error. Be sure to have that paperwork you organized handy!
3. Do a financial temperature check.
An old saying reminds us that we can’t know where we’re going if we don’t know where we are. With this in mind, do you know your financial picture inside out? The most prudent among us will understand everything from the long-term plan and outlook down to the minute details. If this sounds daunting, start with the basics, such as creating a budget and using a system to track spending to ensure you’re living within your means. Remember, there’s no such thing as the right way to budget money. Your perfect budgeting system is one that makes sense to you and that you stick with.
Once you’ve covered the details, it’s time to look at the big picture. Check in on your net worth (your assets minus your liabilities) to get a sense of your overall financial health. If you’re curious about where you stand, you can compare your net worth with your peers online.
4. Come back to your financial goals and circumstances.
Our financial objectives and situation can change over the course of a year. Sometimes that happens without us knowing it. Take a step back and do a financial check-in. Despite any shifts, are you still on track to reach your current financial goals?
If you’re off track, that’s OK. To get back on the right path, set some updated goals. When you do this, make sure that they are SMART: specific, measurable, actionable, realistic, and timely (meaning they have a deadline). If your goals don’t meet these criteria, that means you could have a heck of a time reaching them. So, reconsider your path forward if necessary.
Now, commit to making a habit of checking in with your financial priorities and realities regularly. That way, it’s more likely that your decisions will bring you closer to your goals and dreams, instead of farther away.
5. Trim the financial fat.
Have you ever heard of “lifestyle inflation?” This is what happens when your “wants” make their way into the “needs” category. Most of us will fall into this trap at some point or another but being aware of such spending creep is the first step towards avoiding lifestyle inflation.
If your budget has gone from prudent to packed with discretionary spending, do a deep clean and delete some of those “extras.” Remembering the difference between luxuries and what you really need to live a comfortable, happy life is the key to living within your means.
Also, take a look at revolving expenses. Did any of them increase in the past year, such as your phone bill or internet service? If so, it may pay to shop around and switch. Or, you can make a call to service providers to make sure you’re not paying for more than you need. By doing this, you can save money without cutting an item entirely out of your budget.
Ahh! It feels so good to spring clean your home and get things in order. Using these tips, you could also breathe a breath of fresh air into your finances. So, shake the cobwebs off and get started. By ditching outdated systems and habits, you’ll be more organized and more on track to achieve your financial goals.