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If you’ve caught the spring-cleaning bug, don’t stop at airing out your linens and scrubbing down your baseboards. It’s time to add your finances to your list of seasonal chores. It’s easy to overlook your finances. Like those hard-to-reach areas of your home that collect cobwebs, your budget may need some dusting off.
While it may not be your idea of a fun time, this check-in is crucial to your financial security. It’s a great way to evaluate your spending, get rid of what doesn’t work, and work toward those money-saving goals you set for the New Year.
To help you get started, here are some financial spring cleaning tips.
Financial spring cleaning
Polish off Your Budget
A budget is a living, breathing document. It needs to change as your lifestyle does, so you should update it any time something changes — whether you get a raise, lose wages due to COVID, pay off an instalment loan, or open a line of credit.
You can make a budget the old-fashioned way with a pen and piece of paper, or you can download an app that does it all for you. Your technique doesn’t matter as long as you find balance in your spending plan. Your goal is to spend less than you earn.
For this reason, many financial advisors recommend following the 50-30-20 Rule. This budgeting method splits your expenses into easy-to-track percentages. Your essential living expenses should take 50 per cent of your income after taxes, leaving 30 and 20 per cent of your income for wants and savings, respectively.
Discard Debt
Consider paying your instalment loans, lines of credit, and credit cards as part of your essentials. That’s because you need to make these payments to keep your account in good standing. Setting up an automatic payment for each of these accounts will help you avoid late fines and hit each regularly scheduled payment.
However, you should think about tweaking your budget to put more money into these accounts. If you have the cash to spare, the instalment loan experts at MoneyKey recommend making early or additional payments.
The only exception is if your lender applies a charge for making pre-payments. Even then, it may be worth crunching the numbers to see if this charge is worth it. Depending on your account, paying off your debt early may help reduce what you pay in interest, which could save you a lot of money over time.
Vacuum Away Bad Spending Habits
If your check-in with your budget shows you’re spending more than you make, you need to declutter your expenses. The easiest expenses to discard right off the bat are unnecessary or discretionary spending. These tend to be the fun things in your budget like takeout, subscription services, and entertainment.
Next in line are variable expenses. An expense is variable if it fluctuates, and it can include both essential and non-essential spending — think utility and cell phone bills, groceries, and birthday presents.
You can’t cancel your utilities like you could your Netflix subscription. However, you may reduce what you spend by learning how to control your energy consumption. The same goes for lowering your grocery bill by planning meals around deals, discounts, and in-season produce.
Give Your Finances a Once Over
After a long winter spent indoors, the springtime represents the perfect time to fling open the windows and deep clean the house. In all the commotion, don’t forget about sorting out your financial spring clean. Take the time to neaten up this spending plan to help you face the rest of the year.
