Spring-Clean Your Finances!

Spring is on the horizon. The days are getting longer, the weather is getting warmer, and it’s time to throw open the windows and get to some spring cleaning. And, it’s the perfect time for spring-clean your finances! Follow these steps to get everything under control, and then you’ll be able to see what you need to do to achieve your financial goals.

Step 1: Make a budget and track your expenses

If you are not already budgeting, there’s no time like today to start making a budget! Do you like technology? Use an app. Are you more old school? Use a pencil and paper. Are you a math nerd? Use an Excel spreadsheet. The “how” doesn’t matter, just choose a method and get started; you can always change methods later.

Whatever method you use, I recommend making a zero-based budget. In a zero-based budget, every dollar of your monthly income is assigned a job in the budget so that total monthly income equals total monthly spending. A zero-based budget makes sure no money is “left-over” because “left-over” money tends to wander away, and you don’t know where it went. But a zero-based budget does not have to be restrictive; to leave some flexibility, you can assign some money to “spontaneous fun” – a legitimate budget category in my zero-based budget!

Once you have a budget, you need to track your actual spending to your budget. You can make the BEST BUDGET EVER, but if you don’t track your actual spending to your plan, you will never know where you are relative to your spending plan. Tracking your actual spending is critical! If you used an app to budget, that same app likely offers spending tracking. For those who prefer to create your budget manually, you can add a column next to your budget amounts and track your spending manually. If you created your budget in Excel, you know you can add a column and enter your actual spending.

Step 2: Review your accounts for unused subscriptions and cancel them

Once you have your budget prepared, review all of your credit and debit accounts for any subscriptions that you don’t use and cancel them.

Monthly subscriptions add up! For each subscription that you’re keeping, multiply the monthly cost by 12 to calculate the annual amount of the subscription. Re-evaluate if you want to spend that much in a year for each subscription.

Step 3: Check your credit report

Your credit report lists all of your outstanding debts as well as your debt history. It is important to review your credit report at least once a year. This ensures there are no errors, or worse, signs of identity theft in the form of debts you did not authorize.

Everyone can get their credit report for FREE at annualcreditreport.com. From this website, choose one of the three credit bureaus: Experian, Equifax, and TransUnion. (You can repeat this process for the other bureaus if you want to.) You will need to have your social security number, your addresses from the last two years, and you will need to answer some questions to verify your identity.

Under normal circumstances, each person could get one of their credit reports for free each year. Since the Covid Pandemic, the credit bureaus have allowed each person a free credit report each week. It is worthwhile to rotate your credit report review among the three bureaus. They are three separate companies, with three separate databases so the information may be different among the three bureaus.

Step 4: Automate your finances where possible

Before you are ready for this step, you must have your finances under control – with careful budgeting – to ensure that you do not overdraw your account!

Late payments and missed payments are expensive! Most of our monthly bills are within a consistent dollar range each month. Automating payment of your regular bills is a great way of making sure all of your monthly payments are made on time. You can set up automatic bill payments from the bill side or from the bank side, either will work.

You can make sure your bills are paid after your income is direct deposited into your account, and that no individual check is overdrawn. Then, when life gets busy, you can rest easy knowing that all of your bills are paid on time.

Step 5: Find and consolidate multiple accounts

I am a firm believer in KISS for your money – keep it simple! One way to simplify and spring clean your finances is to consolidate multiple accounts. Most people only need one bank. If you have more than one bank, I’d like to ask you why? Compare the banks, choose the one that will best serve your needs, and close the other(s). There are definite reasons to have multiple savings accounts at your one bank – multiple sinking funds comes to mind – but you really only need one checking account.

One area where a lot of people have multiple accounts is retirement accounts: 401k, 403b, and IRAs. Multiple retirement accounts are usually the result of changing jobs. When you leave a job, you should do a “direct roll-over” of your 401k or 403b into a “rollover IRA account” at a financial institution. Once you have a rollover IRA account, you can “roll” any future 401k or 403b into the same account. Just for clarity, you can also have a separate IRA or Roth IRA where you deposit retirement savings outside of your work 401k or 403b.

If you have any 401k or 403b accounts from old employers, make plans to open a rollover IRA account at a financial institution and consolidate those retirement accounts in one place.

Step 6: Check and update all of your beneficiaries

This is an important step in spring cleaning your finances: check and update your beneficiaries!

It is very likely that you have a beneficiary listed on your life insurance policies. None of us want to think about dying – but we sure don’t want our death to be even more tragic because your ex gets your life insurance because you forgot to change the beneficiary!

Life insurance is a contract. The insurance company has no choice except to pay the insurance proceeds to the beneficiary YOU listed on the policy. So, check all of your life insurance policies – your term-life policies, whole-life policies, policies at work, private policies. It is very easy to change beneficiaries – you can probably do it online!

In addition to life insurance, you may have a beneficiary listed on your bank account, investment account, or retirement account. Make sure to check them all and change your beneficiaries as necessary.