Spring is the season of new beginnings; out with the old and in with the new. As the birds start chirping and the prominent colors change from white to grey to brown and finally to green, many Americans take the time to reorganize some aspect of their lives. We think this is a great time to declutter your finances. Maybe your budget needs a small tweak, maybe you can cut out some of the services you have on automatic payment. Perhaps you have a trip planned and would like to curb your credit card spending habits to have more to spend on vacation. Any time is a good time to consider organizing your finances, but no time is better than the present. If you are unsure where to begin, we have seven suggestions that may help you get a handle on your finances during the spring season and beyond.
1. Unclutter Your Budget
If you don’t have a current budget or spending plan, we’ll go over a few simple steps to get started.
- Start by accumulating all expenses from the previous year.
- Categorize your expenses into needs vs. wants and recurring vs. one-time expenditures.
- Determine your take-home pay after taxes, 401(k) contributions, insurance, and other needs.
- Once you have that number, determine how much of your remaining monthly earnings should be allocated for savings and how much should be allocated to purchasing goods and services that you would like to have.
Whether you had a budget or you just created one, the next step in tidying your budget is to organize all of your “want” expenses. We suggest assigning rankings to how much you want to keep a service or how much you want a future purchase. From there it’s easy to just cut the items from your list that you care the least about. That may consist of keeping a couple streaming services and cancelling the ones you don’t use as often or prioritizing saving for a trip over making a bunch of small purchases. No matter how you address your budget, it’s always better to have it in writing.
2. Straighten Up Your Savings
Having a plan for your savings is very important. Savings can be used for emergency expenses or to save up for that once in a lifetime trip or your next house. A generally excepted rule is to apply 50% of your earnings to needs, 30% to wants and 20% to savings. Within your savings you may want to designate a specific amount for unforeseen emergencies. If you don’t have enough to cover six months' expenses, you could easily find yourself in financial disaster.
3. Freshen Your Tax Withholding
Do you have a large tax refund coming your way? This may be something you want to consider addressing. If you are consistently receiving large refunds, you are actually providing the U.S. Government a 12-month interest-free loan. If you adjust your withholding, you can use that money to better protect against emergencies throughout the year, give it to yourself as a monthly upfront paycheck increase to spend as you wish, or you can invest it yourself and benefit from interest.
4. Inventory Your Material Wealth
Dedicate a few hours to photographing and cataloging your possessions. Concentrate on expensive items like furniture, electronics and jewelry. Include the approximate cost and purchase date of each item. Moving forward, save any receipts and update your inventory when you make large purchases.
5. Brush Up On Your Insurance
Take this time to refamiliarize yourself with your home-owner or renter insurance coverage . Really read the fine print to make sure you are adequately covered. If you followed the previous suggestion, you will have a good idea of how much it would cost to replace the big-ticket items you own. Replacement costs have risen everywhere, make sure you're covered. What you paid for an item might not be what it costs to replace.
This is also a good time to check on your life insurance coverage. Do you know what would happen to your family if you were to die tomorrow. If your situation has changed since you last addressed life insurance, then your insurance needs will have changed as well.
6. Plug Into Technology
Take advantage of the technology that your bank provides for you as a customer. Most banking sites have the ability to give you low account balance or spending warnings. If you properly set up the setting these will be sent directly to you via email or text message.
7. Scrub Your Paper Files
Ideally, most of us would like to go completely paperless. It requires less storage and is easier to search for the fil you need. (Assuming you organize your filing system well). For the financial papers you must keep, devise an orderly filing system.
Finally, remember that bad financial habits come from neglect and passive spending decisions. We all suffer from complacency from time to time, so this spring when we take the time to clean our house, let's also take the time to organize our finances.