My mother always told me “If you ignore your teeth, they’ll go away.”
The same is true for your money.
Wealth doesn’t just happen. It’s not an accident. Rather, it’s the result of careful cultivation and attention.
Spring is the perfect time to spruce up not just your home, but your finances. You can discard expenses that aren’t serving you well, cleaning out your fiscal house to be neat, tidy, and without waste.
Try these eight tips to spring clean your finances, to end the year far wealthier than you began it!
1. Literally Clean Out Your Old Stuff
Might as well kick off the list with some literal cleaning.
My stepfather has a saying that I hated growing up, but have come to respect: “When in doubt, throw it out.” It’s shocking how many objects and things and downright junk find their way into our homes.
Not only does it clutter our lives and cause us stress, but it’s an opportunity to put money back into your pocket. One man’s trash is another man’s treasure, as they say, so go through your house and set aside three piles: items to sell, items that cannot possibly be sold but can be donated, and trash that no one in in their right might would ever take.
Hold a garage sale. Post items for sale on Craigslist and Ebay. Take donations to your charity of choice – and remember to take a receipt.
It’s a win-win-win. You free up space in your home, recover some costs by selling, and secure tax deductions (and good karma) by donating to needier families.
2. Review Your Credit Report for Errors
The credit bureaus process untold trillions of transactions every single month, for hundreds of millions of citizens. They’re bound to make mistakes – usually at your expense.
It’s your responsibility, not theirs, to ensure the accuracy of your credit report. You’re entitled to a free credit report from each bureau every year, through AnnualCreditReport.com, so run at least one bureau’s report and review it for errors.
If you find them, contact the credit bureaus to dispute the erroneous records. Be prepared to provide evidence, and be prepared for it to take a couple months to reflect on your live credit reports.
Your credit score matters. A few points’ difference in interest rate often means hundreds of dollars a month difference in your mortgage payment. Take care of your credit score, if you want it to take care of you in return.
3. Cancel Subscriptions
Subscriptions, like junk in our homes, have a tendency to pile up.
Cable TV, personal grooming clubs, online music subscriptions, video streaming services, cloud backup services, and countless others: they add up quickly to hundreds of dollars a month. The average cable TV bill alone is now over $107 a month!
Get rid of all but the most essential subscriptions. If it doesn’t make your life better, every single day, cancel it. Look at your last three months’ statements, find all subscriptions, and start canceling.
4. Plan Your Retirement Contributions for the Year
Retirement and financial independence are the finish line. We spend our adult lives working, so that one day we don’t have to work anymore. Ideally that day is sooner rather than later.
Do you know how much you need to retire? You should have an exact figure in mind, based on having run the numbers in a retirement calculator like our Choosing Wealth Calculator. If you know how much annual income you want in retirement, you can work backward to calculate how much you need to invest every month, over how many years.
Knowing is half the battle, as G.I. Joe famously recited. The other half is execution: your retirement contributions should be methodical, systematic, a monthly recurrence. Or better yet, a biweekly recurrence, automatically transferring to your IRA or 401(k) every time you get paid.
These tax-advantaged retirement accounts don’t merely hold your investments, they also save you money on taxes. Use them as tax strategy to build wealth faster, rather than losing it to taxes.
As a final thought, you can’t count on Social Security to take care of you in retirement. Even as retirees increasingly lean on Social Security, real benefits are shrinking, and Social Security has started losing money every month that goes by.
5. Set Up Automatic Net Worth Tracking
Retirement and financial independence can seem awfully far away. Conceptual. Intangible.
Want to make it real? Start tracking your net worth, so you can watch it rise every month.
And no, you don’t need to manually shuffle through dozens of spreadsheets. Try an automated net worth tracking platform like Mint.com, that ties into your other online accounts and sends you weekly and monthly reports over email.
You can literally watch your wealth grow, and your hard work pay off before your eyes.
6. Adjust Your Monthly Budget to 4 Weeks
Most Americans get paid every two weeks, or every week, rather than every month. Yet they base their monthly budget based on their annual income divided by 12.
Here’s the problem with that: in any given month, all you can count on is four weeks’ income. Not 4.33 weeks’ income; just four weeks.
So your budget must be based on four weeks’ income, because that’s all you’ll get in most months.
Occasionally, you’ll get an extra paycheck in a month. Great! You can funnel the entire paycheck into savings.
But your monthly expenses can’t be based on an abstraction like 4.33 weeks’ income, when you’ll never receive a third-of-a-week’s paycheck.
7. Automate Your Savings
Discipline is great, while it lasts.
It’s hard to lose weight if your spouse opens a box of fresh doughnuts every morning at the breakfast table. Sure, you can fend them off for a breakfast or two. Then one morning you come downstairs after a bad night’s sleep, grumpy and tired, and decide that today’s your cheat day. You deserve a doughnut, for the night you’ve had!
It’s the same with budgeting and saving. Your discipline can hold up for a little while. But it will fail you one day, when you’re at your most vulnerable.
So? Don’t rely on discipline. Set up automatic transfers to your retirement accounts, to your savings account, to your brokerage account. Make it the first “expense” taken out of your paycheck, rather than simply saving whatever’s left in your account at the end of the month.
If your employer offers a 401(k) or similar account, they can automatically deduct a certain amount for you, from every paycheck. If not, you can set up automated recurring transfers from your checking account to your savings account, to take place each payday.
Or take advantage of modern technology, and use an automated savings app like Acorns, Qapital, or Chime Bank.
8. Budget for Travel, Gifts, and Other Irregular Expenses for the Year
Nothing kills your budget like irregular expenses.
It’s easy to budget for rent, car payments, and other expenses that are the same every month. But what about bills that only come along once a year, or every few months? They’re much harder, because they’re probably not in your budget.
Fix that. Set up a separate account, that’s only used for irregular expenses. Look over the last twelve months’ statements, and add up everything you spent on:
- Gifts (holiday, birthday, weddings, showers – all of it!)
- Home repairs
- Insurance (health, homeowner, and any other insurance bills that you pay annually or semi-annually)
- Any other expenses that didn’t hit you every month.
Last year, the average American spent over $1,000 on holiday gifts. That has “budget buster” written all over it.
So? Take the irregular and make it regular. Divide your total irregular expenses for the last year and divide it by 12, and start setting that amount aside every month for irregular expenses. Automatically transfer it to your “irregular expense” account.
When an irregular expense pops up, it doesn’t have to break your budget, because it’s already funded and waiting in your separate account.
Your wealth needs your attention. It won’t grow on its own.
That means you need to take the time to periodically review your spending, your savings rate, your net worth. Make sure you have a sense for these five crucial wealth planning numbers at any given time, because they are the keys to building wealth.
As they say in business, that which gets measured gets done. So take some time this spring to measure your financial performance – and to clean it up wherever possible.