Spring is the perfect time to tidy up your home and your money. Here are 10 ways to boost your mood, ease some stress, and spring clean your finances.
Around this time of year, I always start to think about spring cleaning. I am a bit of a clean freak, so I have a to-do list for each room of my home. And then it all gets done little by little rather than in a single weekend. Whether you prefer to spring clean a bit at a time or all at once, don’t forget to add one thing to your list: your finances.
Now is a great time of year to check in on those financial New Year’s resolutions and to tidy up your financial life. Not sure where to begin when making your money spring cleaning list? Check out these ideas for a start:
1. Get rid of old accounts
Over the years, it’s easy for accounts of all sorts to accumulate. Maybe you have a 401(k) from a job you worked at for only a couple of years, or an empty HSA that you can’t use with your current health care plan. Or maybe you tried a new bank a while back, but didn’t prefer their service and switched back. You may even have credit cards you aren’t using at the moment.
Now is an excellent time to clean up all those old accounts. Try to figure out where you have accounts, and consolidate as much as possible. This may mean rolling your 401(k)–or more than one–over into an IRA. Or you may need to actually close old bank accounts or credit cards.
Be careful when closing credit card accounts, though, as this will change your debt-to-credit ratio and could lower your credit score. But if the card in question has a relatively small limit or charges an annual fee, it may be worthwhile to close it.
2. Clean up your paperwork
While you’re going through those old bank accounts, start cleaning up your paperwork, too. Reducing the number of accounts you have can reduce the amount of mail you get, which is always a great option. But you should also go through your filed paperwork annually to see what you can get rid of.
Generally, you want to keep tax-related paperwork for seven years, or maybe more if you’re a business owner. But if you’re still hanging on to personal tax paperwork that’s more than a decade old, it’s time to take it to the shredder. As you get rid of paperwork, ensure that your filing system makes sense that you keep the paperwork you need and don’t let things fall through the cracks.
3. Change banks
Are you getting the best possible interest rate on your savings and maybe even checking account at your bank? If not, or if you’re paying high banking fees, it may be time to find a new bank. With interest rates trending up, you may even out-earn inflation in some high-yield savings accounts.
The key here is to be sure you can live up to the bank’s expectations to get the best yields. So be realistic about your daily and annual balances to ensure you aren’t choosing a bank where you’ll inadvertently have to pay fees because your balance isn’t high enough. And be sure the high interest rate you’re going for also applies to your general balances.
4. Get going with a debt snowball
Getting out of debt is always a worthwhile goal. And while you definitely don’t want to think about any more snow this time of year (especially if you live in the Midwest like I do), setting up your debt snowball can be helpful.
One option, the traditional “snowball” method, is to pay off your debts smallest balance to largest balance. Each time you pay off a debt, you roll that debt’s minimum payments into your monthly snowball payment. By the time you get to your highest-balance debt, you’re throwing a ton of money at it each month.
Another option is to structure your debts from highest interest rate to lowest interest rate. This is also a great option, and it can help you save more money as you get out of debt. Check out this article for an overview of the pros and cons of each approach.
5. Set and track a budget
If you aren’t already tracking your budget, it’s time to start now. Keeping track of your budget is the best way to begin working towards your financial goals. And you don’t have to do anything super complicated.
Plenty of online budget tools let you set up a simple budget and automatically keep track of your spending in different categories. And the great thing is that you don’t have to be micro about what you track. Just focus on tracking your trouble spending areas–those types of things you tend to overspend on. Just becoming more aware of your monthly spending can help you rein it in so that you can direct more money towards that debt snowball.
6. Automate your savings
Once you’ve figured out your budget and how much you want to put towards debt each month, look at how much you want to save. Whether you’re saving for long-term goals like retirement or short-term goals like a vacation, automating your savings is an excellent way to make it happen.
For retirement, this may mean looking at your employer-sponsored retirement plan and, if possible, ramping up your contributions. If it’s too early in the year to change your contributions, consider contributing to an IRA instead. You can also make automated transfers between your checking account and your emergency fund, vacation fund, or other short-term savings account goal.
7. Consult with a financial advisor
You might think that financial advisors are only for the wealthy, but that’s actually not the case. In fact, a financial advisor could help you set a path for your financial success in the future. And you may not even need to meet with a real person.
Services like Betterment can help you see where you need to go financially and whether you’re on track to retire when you’d like to. This particular tool is an excellent robo-advisor service that can really ramp up your confidence in financial decision-making.
8. Begin investing
Once you’ve met with a financial advisor or used a service like Betterment, it’s time to start investing if you haven’t already. You’re really never too young to begin investing, and if you’re out of your twenties, you can’t get going soon enough!
If you have an employer-sponsored retirement plan, that’s the best place to begin. This is especially true if your employer offers any sort of match for your retirement plan contributions. That’s essentially free money, so you definitely don’t want to miss out on it! But even if your employer doesn’t offer a plan, you can invest on your own through an IRA, which is another tax-advantaged investment option to consider. Check out this article to learn how to open your own IRA.
9. Track your net worth
Tracking your net worth might seem like it’s not worth your time, but it’s actually something worth looking at. Your net worth is the value of all your assets, including non-liquid assets like your home or car, minus all of your debts. Sometimes the path towards becoming debt free can be long and arduous. But as you climb that path, your net worth will climb, too. So that can be encouraging.
Plus, your net worth is a good indicator of your overall financial health. And it’s not that hard to track, either. Tools like Personal Capital make tracking your net worth practically automatic, which is great.
10. Create or update your estate plan
For me, some of spring cleaning is about preparing for the future. If I spring clean things like the lint trap on the dryer, which you should totally do more than once a year, I can protect my home from the possibility of a fire. And spring cleaning in the basement lets me catch leaks or other problems that could get out of hand in the future.
Financial spring cleaning is no different. Much of it is about planning for the future, both of yourself and of the ones you love.
Unless you’re a wealthy individual, you probably don’t need a complicated estate plan. But nearly everyone needs a will and a streamlined estate plan. For instance, if you have debts, you need to be sure those can be covered so that your loved ones aren’t stuck holding the bag. And if you have children, an estate plan and will is even more important. So if you don’t have one of these or you haven’t looked at it in more than a couple of years, it’s time to get an estate plan together.
These spring cleaning steps could happen in the course of a week or two with some dedicated effort and the right tools. Or you can begin your spring cleaning now and plan to finish in a couple of months, just in time to relax for the summer.Topics: Personal Finance