Polish Your Budget: 9 Simple Ways to Spring Clean Your Finances
I want to like spring cleaning. I go nuts for the New Year and Lent, because I’m all about self-improvement. Similarly, spring cleaning is a time to reorganize and start over in many areas.
But I despise it. I hate any cleaning, really. Folding laundry is about the only thing I do that qualifies as housework.
Lately, however, I’ve been seeing lots of posts about “financial spring cleaning.” Applying spring cleaning to money? This idea is perfect for me! I can work toward self-betterment without having to pick up a sponge.
Here are a few ways you can scrub the dirt off your finances this spring.
By the way, you don’t have to take on all nine of these goals. Actually, please don’t! When I read lists like this one, my perfectionism kicks in and I get overwhelmed by how many changes I think I should make.
Just choose one way to clean your financial home this spring. Maybe two ways, if you’re feeling adventurous. Remember, your goal is progress, not perfection.
Start with one small, measurable goal. The sense of empowerment you will experience from being successful in that area can give you the confidence to take on the next small challenge.
1. Reevaluate Your New Year’s Resolutions
Maybe you set financial New Year’s resolutions for 2017. I know I did!
But since 80% of people drop their New Year’s resolutions by February, there’s a good chance you’ve let at least one of those goals fall by the wayside. For example, I’ve successfully followed the timeline I set up in January to pay off debts… but I keep ignoring my resolution to put money into savings.
If you’re also one of the 80%, resist the urge to see yourself as weak; instead, consider yourself older and wiser. Spring is the perfect time to modify resolutions that weren’t realistic.
So you didn’t make any resolutions? That’s OK. Peruse the rest of the ideas on this list and choose one or two personal spring cleaning goals that feel manageable.
2. Open an Emergency Fund
It’s a common opinion that people should have at least three months’ expenses in savings at any given time. Then if you lose your job or your car breaks down, your life doesn’t suddenly fall apart.
Guess how much money I have in my emergency fund? A whopping $0. Yeah, starting an emergency fund has earned its place at the top of my spring cleaning list.
To start your emergency fund, calculate your expenses for one month. Consider the cost of rent, utilities, transportation, insurance, and debt. Don’t forget sneaky expenses such as personal hygiene products.
Then multiply that number by three. That’s how much money you should aim to have in your emergency fund.
Where should you open an account? The key is that you want your money to be accessible in case of an emergency, but not so accessible that you’re tempted to withdraw it when you want to go on a weekend trip with your friends.
I recommend opening a separate savings account with your bank, or a money market account. Money market accounts typically require a higher minimum balance, but the interest rate can be higher — which means more money for you! Here is NerdWallet’s list of money market accounts with the highest interest rates this year.
3. Keep Track of Your Debts
For six months, I was aware that I had debts to repay. I knew that I owed my in-laws money, that my husband had some vague amount to repay on his student loans, and that I had a little credit card debt (although precisely how much was on each of my three cards was a bit fuzzy).
A few weeks ago, I finally took 30 minutes to create a spreadsheet in Excel listing all our debts, including the grand total. Now I update that document every Monday.
Seeing everything in print gives me a better idea of where we are financially. And every time that grand total gets smaller, I do a little dance in my chair!
Looking at those numbers every Monday, especially the total, gives me the momentum to keep chipping away at our debt.
4. Sort Out Your Credit Cards
Everyone’s credit card situation is different.
If you have eight credit cards and little willpower, consider canceling a few of those cards. (But first, check how canceling your credit card could affect your credit score. Canceling isn’t always the best idea.)
If you have a low credit score but high willpower, maybe you should get a card and use it responsibly to establish good credit.
I (incorrectly) held the belief that credit cards were pure evil for years. But some credit cards pay you for signing up, hook you up with travel points, or give you extended warranties on certain purchases.
Do your research and find out how you can make credit cards work for you rather than against you. I recently paid off the last of my credit cards that carried a balance. Yay, me! Now I’m trying to decide on my next step.
5. Act to Improve Your Credit
First of all, if you don’t already know your credit score, get a free credit report. If you don’t like what you see, don’t freak out; there are plenty of ways to boost that number!
Simply paying off your debts and paying your bills on time can improve your score. If you’re not sure what’s keeping your credit score so low, check out Credit Sesame. The free site lays out exactly what factors are affecting your credit score and offers advice on how to change them.
A few years ago, I had good credit, but I wanted excellent credit. So I set up a loan with my bank. They gave me $2,000 to pay back over two years. I immediately put that money in a separate account, set up automatic withdrawals, and never had to worry about it. (Except when I had to take out money a couple times for emergencies. See why I’m motivated to set up an emergency fund?)
That was the easiest way I could have imagined to improve my credit score. I got it all set up in just one trip to the bank. My credit score is now 787.
6. Set Short Term Goals for Your Side Hustle
Whether you’re a freelance writer, Uber driver or Etsy shop owner, it’s always good to set clear objectives.
Setting concrete goals has helped me understand my long-term vision for my freelance writing side gig. I created a list of aims in a Word document, and that document acts as a source of accountability. I look at that list whenever I decide whether to take on a new project. I ask myself, “Is this decision in line with my goals? Is it helping me move toward my long-term vision?” Setting goals has motivated me to take action.
I also have annual income goals for my freelance business. 2016 was my first year freelance writing. Now that I have more experience, I know I can make more money. I want to earn at least three times the amount I earned last year. I’m off to a good start!
In 2016, I wrote several pieces for no pay because I wanted the exposure. Now that I have this financial goal for 2017, I feel confident only writing a piece if I will be paid for my work.
Now that I have a couple of steady gigs, I’ve started setting monthly and weekly financial goals, as well. Now I have fewer surprises, and I can plan for how much of this extra money I want to channel toward paying off my debts.
7. Contribute More to Your Retirement Account
If you’re contributing anything to your retirement account, high five!
But if the very thought of doing financial spring cleaning depresses you, make your “one thing” to bump up your 401(k) or IRA contributions a tad. If you currently contribute 4% of your income, try bumping it up to 5% or 6%. Chances are, your wallet won’t feel the difference. If you find out your budget can’t handle the financial strain, you can decrease your contribution later.
Increasing your contribution by such a small amount may not seem worth it. But don’t forget the power of compound interest!
If you haven’t opened a retirement account yet and don’t know what a 401(k) or IRA is, don’t panic. Read this simple explanation. It’s never too late to start. My mom is kicking herself for putting off contributing to a 401(k) until 10 years ago, but hey, at least she started!
8. Begin Investing
Making your first investment is daunting. Especially if you’re like me and know nothing about the subject.
I urge you to take that leap, though. When you invest, your money makes you more money. There are several ways to take your first step.
My husband and I chose to pass the torch to our financial advisor. We set up automatic withdrawals with his company to put money into our IRAs. Since we are still in the early stages of saving for retirement, once we hit a certain balance in those accounts, our advisor will start making investments from our IRA nest eggs to help the accounts grow. We won’t have to worry at all.
If you don’t want to pay an advisor, ask a family member or friend who understands investing to take you under their wing and explain their strategy.
9. Consider Your Insurance Needs
My brother’s apartment recently burned down, and he lost almost everything. He’s 32, and believe it or not, the exact same thing happened when he was 20! (Neither fire was his fault, by the way.)
While upsetting, the second fire was far less financially devastating because he had renter’s insurance. The insurance company paid for food and a hotel while he looked for a new place to live and gave him $10,000 to replace items lost in the fire.
We like to think we don’t need insurance. Hopefully, we’ll never have to use it. But if you don’t have renter’s, homeowner’s, life or catastrophic insurance (for those of you whose employers don’t offer medical insurance)… seriously look into it.
Of course, not everyone needs all these types of insurance! Carefully review your needs to see which ones you should consider, and which aren’t necessary for you.
Don’t freak out if you haven’t already accomplished all nine of these tasks. That’s what spring cleaning is for! Focus on one thing this season, whether it’s purchasing renter’s insurance or bumping up your credit score.
Meanwhile, I have a date with my Wells Fargo customer service agent. We’re going to open a savings account for my brand-new emergency fund!
Your Turn: What is the one thing you can do to start your financial spring cleaning?
Laura Grace Tarpley is a freelance writer who is always looking for ways to save money. She teaches English to adorable children in Shenzhen, China.