Your home isn’t the only thing that needs sprucing up this spring.
We all get cozy and comfortable in the winter, relaxing at home with our families in semi-hibernation. But it’s time to start shaking off the cobwebs and bear down on what we want to do differently this year.
Spring is the perfect time to dust off your finances and evaluate what needs polishing up and what should be thrown out. If you want to end this year in dramatically better financial shape, here are six steps you can take right now to clean up your fiscal house!
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1. Clean Out the Clutter & Sell Your Old Stuff
Why not start on the literal side, with spring cleaning?
My stepfather has a saying: “When in doubt, throw it out.” He and I agree with the old Fight Club missive, that the things you own end up owning you. But before tossing perfectly good items in the garbage, why not sell them instead?
We all know the old adage that “one man’s trash is another man’s treasure.” It’s entirely true—you might be ready to upgrade to a wider, flatter, crisper TV, but if your old TV works, sell it on Craigslist to someone who would love to add a TV to their spare bedroom.
Likewise with that old end table, couch, entertainment center, wardrobe, whatever. And your old clothes? Sell them on Etsy!
Some things may be more trouble than they’re worth to sell. So take a tax write-off and give them to a charity.
Less clutter, more money; life is good.
2. Audit Your Spending & Savings Rate for the Last Year
For each of the last twelve months, try to pin down exactly what you spent on each of the following: groceries, entertainment (including meals out), travel, and gifts. Next, look at your savings rate over the last year. Of your net income, what percentage did you save?
This is a task most people avoid—sure, it takes a couple hours on a Saturday morning, but this also gets avoided because most are reluctant to face these cold, hard numbers.
You will probably feel uncomfortable when you add up exactly what you spent on the above categories. But how can you stop the bleeding this year if you don’t know where the leaks are? How can you measure progress if you don’t know your baseline savings rate?
Once you’ve done your audit, challenge yourself to reach a substantially higher savings rate this year. Set a target savings rate and start having your savings pulled out of your operating account on the same day you get paid. It’s hard to spend money that’s not available in your account!
3. Switch Your Budget to a Four Weeks’ Income Basis
We talked about this while discussing how to live on half your income, but it’s worth a brief reiteration here.
In real life, your income is not “my annual salary divided by 12.” Basing your budget on some theoretical fraction is a recipe for disaster.
You can count on four weeks’ income in a given month—that’s it. When setting a monthly budget, set your income as four weeks’ take-home pay because that’s what you’ll actually have most months.
Related: 3 Negatively Cashflowing “Assets” That Devastate 20-Somethings’ Finances
On the occasional month when you receive an extra paycheck, guess what you can do with that money?
4. Plan Your Retirement Contributions for the Year
If you’re lucky, your employer has a good 401(k) plan and helps you make automated contributions with each paycheck. They may even match your contributions. If this is your situation, consider increasing your automated contributions.
But for the rest of us, we’re in charge of our own retirement investing. Do you have an IRA or Roth IRA? If not, consider opening one.
How and when is money going to leave your operating account and get to your retirement account this year? Do you make intermittent payments when you have a sudden windfall? Do you have money transferred automatically from your checking account to your IRA every time you get paid?
You know me—I’ll always advocate for automated, systematized savings mechanisms. Still, those months when you make an extra paycheck are a great time to put the paycheck directly into your retirement account!
5. Review Your Credit Report for Errors
The credit bureaus process trillions of transactions, trying to assign each to an individual person and an individual account of theirs. They can’t possibly get all of those data points right, and they don’t.
They make mistakes all the time.
It’s up to you to find those mistakes and have them corrected. You are in charge of your own financial success; you’re the CEO of your own personal corporation. Use your annual free credit report, and scour it for mistakes. Make sure that every black mark against you is accurate. Hopefully there aren’t many!
When and if you find mistakes, call up each of the credit bureaus and tell them. Be prepared to provide documentation to prove your innocence of whatever financial misdemeanor they’ve accused you of, and watch your credit score leap up.
6. Plan Your Budget for Travel, Gifts & Other Irregular Expenses for the Year
Irregular expenses are budget-busters.
Birthday presents, holiday gifts, wedding presents, baby showers—few people budget for them in advance, and many are surprised when their credit card bill shows up.
Set a budget for the entire year for all gifts. Set another budget for travel expenses—and so on for any other irregular expenses in your life.
It might help to set up separate savings accounts for each. But the important thing is that you plan for these expenses in your monthly budget, so they don’t catch you “by surprise” when it comes time to pay the bill. Just because these expenses are irregular doesn’t mean they aren’t predictable.
Set budgets for these, put money toward them every month, and when you have a month with two birthdays, a wedding, and a baby shower, you won’t freak out about how to pay for all these gifts.
Related: Why Making More Money is NOT the Solution to Your Financial Problems
While you’re at it, now is a great time to plan your trips for the rest of the year! Book your travel plans now, before prices rise as the dates get closer.
Tidy Finances Make for Stress-Free Living
I’m not the most fastidious person by nature. My home isn’t always clean, and like everyone, I go through periods when my finances aren’t so neat.
You already know how good it feels when your home is spick and span. When your finances are just as clean and tidy, you’ll feel that same relief and satisfaction multiplied tenfold.
The number one source of stress among Americans is money. I suspect that’s true in every country in the world, not just the good, ol’ U.S. of A. But by taking some time over the next month to do a thorough spring cleaning for your finances, you’ll feel an incredible weight lift off your shoulders.
And as your stress disappears alongside your clutter, you’ll start seeing some tangible results in your net worth, too.
What steps have you taken recently to clean up your finances? What’s working well for you and what’s not?
This is a judgment-free zone—we’re in the trust tree!
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4 Comments
Great tips Brian. Even if you already think you have a solid financial plan it’s good to re-visit all of these items to make sure you are on track.
That’s an excellent point Tim. We all get so caught up in the immediate demands of the day-to-day that we often lose sight of our bigger picture goals. In the words of Ferris Bueller: “Life moves pretty fast. If you don’t stop and look around once in a while, you might miss it.”
Hi Brain, all my adult life i have been working , but i have not been putting anything away. Now, i am starting to , the thing is i”m in my late 40s. Hopefully its not to late?
Unless you’re on your deathbed, it’s not too late. There’s a Chinese saying I like a lot: “The best time to plant a tree was 20 years ago. The second best time is now.”