The extraordinary global events of 2020 have rocked budgets, sapped savings and frustrated fiscal aspirations. But with the new year comes an opportunity to review personal finances and re-assess savings and spending goals.
Here are 4 tips to help you clean up your finances this spring after a pandemic-tainted year that has shaken many and prompted plenty to re-examine their financial strategies.
Evaluate Your Current Financial Situation
You can’t take action or work to “clean up” your financial situation if you’re unsure of what it actually looks like — from the big picture down to the details.
Start with the basics: ensure you’re operating with a budget, you have a system to track your finances and you’re living within your means.
Take a look at each of these elements in detail. Is your budgeting process one that you like and consistently stick with month after month? If it’s not working for you, it’s time to try something new. Remember, there’s no such thing as one right way to budget your money.
After you’ve got your monthly budget in line, also take a look at how you manage your money on a daily basis. If things are slipping through the cracks, take time to clean the cobwebs from your financial processes and create systems that actually function for you.
Once you cover the details, check out the big picture. Look at your net worth — your assets minus your liabilities — to get a feel for your overall financial health.
Cut Unnecessary Costs
Lifestyle inflation is a hard thing to avoid, and it’s a trap many of us fall into at one point or another. This spring, take a look at your spending and your expenses. Have any “wants” crept into the “needs” category?
If so, clean ’em out and put them back where they belong. Understand the difference between luxuries and what you truly need to live a comfortable, happy life within your means.
Also take a look at the expenses that you can’t avoid: housing, food transportation. What costs rose over the last year? Call service providers and any company that regularly sends you a bill to ensure you’re not paying for more than you need. You can do some spring cleaning just by trimming those expenses you can’t throw out completely.
Organize Your Financial Life
Do you know the status (open or closed) of every single credit card you’ve ever had? Do you know where you’ve stashed your tax returns from the last seven years? Can you access a credit card statement quickly so you can dispute an incorrect charge in a timely manner?
You can’t manage information you don’t have or know. And you certainly can’t keep track of every aspect of your financial life if you don’t have a clue about parts of it. This sounds simple, but a little organization goes a long way.
Reconnect With Your Financial Goals and Priorities
Much like costs and expenses that sneak up on you, your financial goals and priorities can shift around without you realizing it. It’s always good to take a step back and check in with yourself. Are you still on the right track toward what you want to achieve?
If you’ve missed a few goals or have gone way off the path, that’s OK. Look at the goals you’re setting and first make sure they’re “SMART”: specific, measurable, actionable, realistic, and timely (which means they have a deadline attached to them). When your goals don’t meet these criteria, you could set yourself up for a rough time in reaching them.
Make it a habit to check in with yourself and what you want so you can ensure your actions take you closer to goals and dreams instead of further away from them.
It feels great to spring clean your home and enjoy the start to a fresh new season. The same can be said when you spring clean your finances. You can replace outdated money management systems and habits, get organized, and rediscover your financial priorities to make the next 12 months even better than the last.