How to Clean Up Your Finances

When temperatures start to rise, many of us naturally want to open the windows, deep clean, and get rid of clutter. Why not apply that same refreshing ritual to your finances? Just as you’d prune deadwood in your yard, you can trim wasteful money habits. Plant seeds for new financial goals while preparing for the April tax deadline. Get out the (figurative) feather duster and give your budget a thorough once-over.

Conduct a money check-in

The first step is taking stock of your overall financial situation. Gather your latest bank statements, pay stubs, bills, and debts. Use a trusty budgeting app or spreadsheet to calculate your monthly income versus expenses. This bird’s eye snapshot reveals if you’re living within your means or drowning in debt.

If you examine your last 90 days of spending, you’ll probably find you can cut back on areas you don’t even realize you’re wasting money (overlooked subscriptions come to mind). It also helps to get on top of your unconscious spending with tricks like physically writing down the things you want to buy before you buy them.

For example, say your net monthly income is $US4,500 while expenses ring in at $US4,100. You’d have $US400 leftover each month to put towards goals like saving or paying down debt faster.

First, tackle lingering high-interest debt

Speaking of debt, your top priority should be eliminating any you’re paying high interest rates on, such as credit cards. List out all debts by interest rate from highest to lowest. Put as much as you can each month towards the highest interest debt first while paying minimums on the rest.

As an example, if you owed $US10,000 at 19.99% on one credit card and $US5,000 at 0% on another, focus on aggressively paying that high 19.99% balance down first.

Get your filing ducks in a row

Make assembling your tax documents part of your spring cleaning ritual. Have a designated folder or binder to compile W-2s, 1099s, mortgage interest statements, donation receipts, and any other necessary forms. Securely discard what you don’t need like paid bills or six-plus year old returns/documents once filed. Proper record-keeping makes tax season far less stressful next time.

As an example, use a folder or digital system with separate sections for income, deductions, credits, and prior year documents to stay organized.

Automate finances where possible

Spring is all about embracing new habits and getting organized. Now’s an ideal time to arrange automatic payments and transfers so your finances run smoothly in the months ahead:

• Arrange to automatically pay all bills from a hub account
• Set recurring transfers to divert funds into separate savings buckets for different goals
• Sign up to automatically increase your 401(k) or IRA retirement contributions each year

Clear account/credit clutter

While you’re going paperless, clean out mystery charges on your bank or credit card statements. Root out any zombie subscriptions or recurring fees for products/services you no longer use or need. These small money drains can easily go unnoticed but add up over months and years.

Choose the right types of accounts for your needs

Different savings vehicles offer different tax advantages. For instance, if you have kids, research setting up tax-advantaged 529 education accounts.

Spring is smart timing to ensure you’re maximizing those benefits. For a long-term goal, like retirement, you want to consider a retirement account like a 401(k) or IRA to earn compound interest over a long period of time—money invested over time, even small amounts, can make a big difference.

For short-term goals, you’ll want your money to be easily accessible in cash and earning high interest. Something like a high-interest cash management account allows you to easily take out money when you need it.

The bottom line

Whatever the season, taking a periodic, comprehensive look at your finances allows you to get rid of unhealthy money habits, identify problem areas, set new goals, and determine smarter ways to save, spend and invest. An annual financial clean-up provides clarity on where you truly stand financially and what needs to be prioritized. It’s easy for things like mounting credit card debt, lack of retirement savings, and unhealthy spending patterns to get out of control when you aren’t regularly reviewing your money situation.