Spring is right around the corner, which means itâs time to come out of hibernation and do some tidying up before summer hits. Along with organizing the basement and cleaning out your closet, why not set aside some time to review the status of your finances as well?
Even if you keep a fairly tight budget, itâs still worthwhile to do regular financial check-ups to make sure youâre on track to meet your goals. To help you get started, we put together a financial spring cleaning guide.
Fine-tune your budget. A budget is a plan for your money, but even the best laid plans have a tendency to go awry. A regular budget check-in can help you stay on top of your spending behavior and make any necessary tweaks. If you donât already have a budget, check out our guide to help you get started.
Commit to cutting back on excess food shopping. âThe common budgeting offenders are grocery stores and eating out,â said Ryan McPherson, CFPÂŽ and director of coaching at financial education company SmartPath. The problem isnât the cost of each grocery or restaurant bill, according to McPherson â itâs usually the frequency of food shopping. Hereâs a tip: try listing out the number of times you went to the grocery store or ate out in the last month. Divide that number by four to figure out how many times you spent money on food each week. Then, make it a goal to go to the grocery store or out to eat one less time per week. Keep reducing your visits slowly until youâre at a point where your food spending is where you want it to be.
Compare providers. Shop with competitors to see if you can get a better deal on services like cable, internet or insurance. Ask your current providers if the prices you find can be matched, or consider making the switch to more affordable companies to lower your bills for the rest of the year.
Check your savings account and come up with a savings plan. The target for liquid emergency savings is generally three to six months worth of household expenses. According to McPherson, if you need to beef up your savings account, donât to think of it as needing to save another $1,000. âThatâs an overwhelming amount for most people,â he said. Instead, he recommends dividing the amount you need by the next 12 months. This will give you a manageable amount, like $100 to $150, that you can set aside monthly until you reach your goal. Store that money in a high-interest savings account to boost your returns.
Automate your plan. âAutomating anything in personal finance is going to lead to better results and habits,â said AJ Ayers, head of operations at financial planning company Brooklyn FI. Set up automatic contributions from checking to savings so you donât even have to think about it. Ayers also recommends keeping your savings and checking at separate banks so youâre not tempted to spend your savings or withdraw it from an ATM. Automatic saving apps like Joy and Qapital are extra tools that can also help you ramp up your savings.
Bump up your retirement contributions. McPherson told MagnifyMoney that a good goal is to sock away at least 20% of your gross pre-tax household income for retirement. The 20% includes the contributions that both you and your employer are making. Spring is a great time to reassess and potentially boost your contributions for the rest of the year. Donât forget to take into account any promotions or bonuses when thinking of ways to increase your contributions.
Write a will or update your existing one. Death is a morbid topic, but itâs a reality that many fail to plan for. You may need to update your will if youâve had a change in assets or a change in your family situation. Hereâs a guide to help you get your estate plan in order, including information of creating wills and designating a power of attorney.
Update your beneficiaries. You donât want to end up in a situation where the wrong person gets your cash. When you pass away, retirement accounts are paid out based on your beneficiaries and not based on your will, said McPherson. Say you get divorced, then you get remarried, and then you die before changing your beneficiary. If your ex is still listed as the primary beneficiary on the account, the money could go to them regardless of what you designate in your will. After any life event (e.g. marriage, divorce or having a child), you should update your beneficiaries to make sure your money goes where you want.
Consider life insurance. In the event of your death, life insurance offers a source of funds to the people who depend on you financially. Without it, family members could be left struggling to pay for funeral expenses or day-to-day necessities. Nowâs a good time to look at your policy and consider whether or not the coverage is appropriate and whether or not you need to make any changes.
Settle your bill. At this point, you should have all the documents you need to complete your tax filing. âIf you owe money and you canât pay your taxes, do not delay. Get out in front of it right now,â McPherson said. Contact the IRS to get on a short- or long-term installment plan. When you owe money, Uncle Sam will either work with you or against you. The IRS has almost unlimited power to reclaim what you owe them, according to McPherson â ignoring your tax bill will only lead to bigger problems.
Decide how youâll use your refund. If youâre getting back a refund, come up with a plan for how youâll use that money. Instead of splurging or just sitting on the extra cash, put that money to work by boosting your emergency savings or paying off excess debt. A plan will help you stay on track and prevent you from squandering your refund.
Check your withholding. McPherson recommends checking your withholding annually, especially if youâve experience a major life change during the year. Did you get married or divorced? Did you have your first child? Did you have another child? Fill out a new W-4 and submit it to your employer.
Pull your credit reports and scores. Review your credit reports every so often to check for mistakes or other red flags. â[Negative records] could be the result of your habits or of someone stealing your identity,â said Ayers. Youâll want to nip both â poor habits or fraud â in the bud. Weâre also all entitled to one free credit report from each bureau annually, and you can get your reports at www.annualcreditreport.com to review. But while your free annual reports doesnât come with a credit score, you can get one for free at LendingTree. Disclaimer: MagnifyMoney is a subsidiary of LendingTree.
Dispute records. Circle items on your credit reports that are inaccurate or incomplete. File a dispute with the credit bureau and the reporting creditor. The dispute filing will trigger an investigation; records found to be incorrect or incomplete will either be removed or updated. You can make disputes online, or you can send in a letter. Hereâs everything you need to know about disputing a credit report.
Develop a plan to improve your score. There are five key factors that determine your credit score: payment history, credit utilization, length of credit history, kinds of credit and new credit inquiries. The most influential are your payment history and credit utilization, so if youâre trying to boost your score, start there. Set up automatic payments so you donât accidentally miss a due date, and decrease your credit utilization by focusing on decreasing your debt. You can also try calling your credit card companies to see if theyâll raise your limit, Ayers said.
It doesnât feel like spring yet for a good part of the U.S., but, thankfully, itâs coming soon. These steps can help you force your finances out of hibernation and prepare you for a sunny and financially stable summer.