Do you look at your bank account each month and wonder where all your money went? If so, it may be time to spring clean your finances to make sure that you're getting the most bang for your buck.
But you're not alone… the average American Family spends $57,000 per year, or $4,750 per month. But the savings rate in America is dismal.
And if we could clean up our finances, we could start saving money to:
- Pay off debt
- Take a dream vacation
- Buy a house
- Pay for your children's college
So getting your financial life under control is critical to achieving your goals. It's important. So give yourself a better chance of success by downloading this free Financial Spring Cleaning Workbook. Enter your e-mail below, then check your inbox, print it out and let's get started.
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My Financial Spring Cleaning Inspiration
Last month, I got my year end summary statement from my Chase Freedom Credit Card. I use this card for almost all of my purchases because it's so easy to track my spending and connects seamlessly to my Chase Checking and Savings Account.
Want to check out the Chase Freedom Credit Card? You can get a $150 Sign Up Bonus through my Refer-a-friend link
The year end summary statement is one of the BEST things about the Chase Freedom Credit card. And every year, I pull up my past years for a comparison.
Last year I spent a lot on travel, which is awesome, because it aligns to my goals to spend quality time with family and be present in their lives.
But there were a few things that were out of line with my goals, and so it was time to do a Spring Cleaning.
But, I looked at my spending for past years, and realized I had actually cut down my spending by over $12,000 by cutting out impulse shopping. How did I do it? I used Amazon Prime to stay on budget!
What you Need to do a Financial Spring Cleaning
If you were going to clean your house, you'd get out the rags, broom, mop, cleaning agents, maybe even a ladder. And cleaning your finances means you need to get prepared too.
Gather the following documents. If you are missing a document or don't have one of the associated accounts, don't worry. You can get started anyway! However, you might want to put it on your follow up items list.
- Credit card history
- Checking account history
- Savings account history
- Investment account history
- Your taxes from last year
- Your will and legal documents
Scrub your Spending Habits
The first step is the most fun! It will let you make sure that what you do every day aligns with your long term goals. That's not just fluff… think about it!
What you do every day sets you up for success or failure in your long term goals. If you want to take a trip to Europe, but you can't break the habit of picking up a 6-pack after work, you might not be able to achieve your Europe goal!
Walk through each of the following areas and identify what you can reduce, change or eliminate to save money.
If there is something you have wanted for a long time, but couldn't figure out how to make it work in your budget, ask yourself what you could eliminate that isn't as important so that you can afford what you really want.
Subscription services are a retailer's dream. You sign up, you pay every month, and people often carry subscriptions without ever using them.
Look on your credit card and checking account statements for recurring charges. What are they for? Have you used them lately? Can you cut them out?
Some subscription services like LeTote, Stitchfix or Amazon Prime allow you to stay out of the shopping mall (thus reducing your overall impulse spending). If that's how you're using it, keep it! But always stay honest about how you're using your subscriptions to save you money!
Lower your Monthly Bills
Another recurring charge are your monthly bills. Water, trash, recycling, electricity, gas, cell phone, debts, these all represent a significant portion of your spending.
If you haven't taken a few minutes to find ways to reduce these bills, it's time to buckle down. Here are my favorite ways to reduce monthly bills.
- Find a lower electricity rate at powertochoose.com
- Install low flow showerheads or toilets and adjust your sprinkler settings to reduce water consumption
- Set your thermostat 2 degrees higher or lower to reduce electricity and gas usage
- Try a company like Republic Wireless with flexible cell phone plans as low as $15 per month
- Refinance your student loans and other debt at lower interest rates at Credible.com
Rent or Mortgage
I hate giving out rules of thumb, because they often can be misapplied and lead to bad decisions. But I'm going to try one here: Your monthly housing expense should be less than 30% of your monthly take home pay.
Your rent or mortgage is often where people get themselves trapped financially. If you feel like you don't have enough spending money, it may be because you have spent too much on housing.
I realize that 30% will only buy you a closet in expensive rental markets. But if you are spending more, realize that your choice and desire to live in that area has limited your budget in other areas.
That said, you can do something about it if you decide that you don't want to spend so much on housing. Here are three ways you can lower your housing expense:
- Move to a less expensive neighborhood
- Buy less space (real estate is priced per square foot, can you live with less space?)
- Negotiate longer terms on your rental (in return for reduced rent) or mortgage
If you're ready to move, you can always look at new places with a realtor. Realtors typically receive commission from the landlord or the seller, so they should not charge you anything. If you decide to sell your house, to move into a smaller one, you can always try listing your house for sale by owner on Zillow.
Car and Transportation
The second place people strap themselves for cash is by getting into a hefty car payment. People tend to fall into two camps here: the “I'm a car guy/girl” or the “I don't want to drive a beater”… and then there's me who refuses to let her husband repaint the car because the clearcoat is peeling… but that's beside the point!
Get the Best Value Car
If you're in the “I don't want to drive a beater” camp, that's AWESOME! You're going to get the most room in your budget from evaluating your car. Look for cars that are very low cost to own. Car brands like Honda and Toyota are not cheap up front but tend to have a very long lifespan.
Your goal is to maximize the longevity of the car after you pay off the car. So, look for something you can buy for cheap, and drive forever. For example, I'm still driving my first car I bought in 2011 for $10,000, it is a 2007 Jetta base model. It had 50,000 miles and will likely drive for 200,000+ miles. I paid the car off in 10 months, updated the stereo to Bluetooth for $200, and then keep up with repairs.
Upgrade your Car
If you're a “car guy/girl” meaning you want to drive something nice, that's great, it's valuable to you. Ask yourself what is most important about the car. Do you want a sweet interior with all the bells and whistles in the stereo? Do you need something that goes fast?
Look on the used car market for cars that are undervalued that have your desired features. For example, my family loves to pick up the top of the line Mercedes that sell for $70,000+ new, for less than $30,000 used. The difference in that car payment is over $500 per month. That's a lot of savings!
If you're willing to go the extra mile, literally. I read a really interesting statistic in the book Get Up! If people chose to walk everywhere they went, on average, they would only spend a total of 10 minutes more per trip by walking instead of driving. So, can you cut out your transportation expense entirely?
Bad Habit Spending
We all have something we spend money on that's a bad habit. Do you smoke? Pick up some booze after work? Need an energy drink in the morning? (I won't mention the cliché latte.)
Bad habits really add up over time. For example, the average smoker spends over $1,500 per year on cigarettes.
And I know, that stopping a bad habit is much, much more than quitting for financial reasons. But think about your goals. What is the one thing you wish you had the money for? Add up how much you spend on bad habits every year and see how many years it would take you to reach your financial goals.
If you've been wanting to quit something, but you're needing a little guidance, I was really inspired by the book The Power of Habit, which you can get on Amazon here.
Scrutinize your Investments
Unless you're a day trader, you probably haven't dusted the cobwebs off of your investments in a while. It's a great strategy to “set it and forget it”… except that you need to check in to make sure your investments align with your goals.
Start by taking a 10,000 foot view of your portfolio of assets. Where do your assets lie? A 401K? Investment property? A business? Make sure you feel confident that your portfolio would withstand an economic downturn and still allow you to achieve your goals.
If you feel unsure, make a plan to rebalance your portfolio to align with your goals. Think about the risk level associated with each investment and when you will need the money.
Then take a more granular look. What stocks are you invested in? Are you invested in funds? If so, look at the stocks your funds are invested in. Align any stock market portfolio to truly align to your risk evaluation. Need help with your stock evaluations? Click here to buy my favorite stock market book, Fire your Stock Analyst, on Amazon.
If you've invested in property, a business, or any other investment, evaluate if you are getting the expected returns. Also, spend some time researching if there are better opportunities out there for you to invest your money, and what the transaction costs are to move your assets.
Haven't started investing yet? It's time. Compound Interest is the reason for urgency… the best time to start investing was yesterday, and the next best time is today!
Take Note of your Taxes
While I'm not a tax professional and this is not to be taken as professional tax advice, I do send a lot of money to Uncle Sam for taxes. And like you, I think taxes are really boring. But, there are a few things that you should do during the year to limit your tax burden.
First, you need to know what deductions and credits you are eligible for on your taxes. If you have a good accountant, they will spend time educating you so that you can minimize your tax burden within the legal limits. But, if your accountant is lousy (get a new accountant?) or you do your own taxes, it's up to you to educate yourself. Read this IRSt resource for what deductions and credits are allowed based on your tax filing.
Then, get organized so that you are aligning your tax savings strategy to what you're actually doing in real life. Does that mean you need to open a new bank account to run certain expenses through? Or do you simply need to save receipts for donations in a folder on your desk? Identify what you need to do to and start it today.
Your Will and Legal Documents
One of the hardest things to do is to take care of the “what if's”. Preparing for what might happen is hard because you have to plan for many scenarios. There are two key areas to focus on during your financial spring cleaning.
Write a Will
I think one of the kindest things to do for your family is to give them direction for how you want your things to be handled when you're gone. Writing it down will ease the stress and burden on your family trying to make decisions for you.
If you have a will, read it and update it to make sure it aligns with your current situation. If you haven't written a will yet, schedule time to talk to an attorney to write down your wishes.
Take Care of Paperwork
Filing papers is the grunt work of any office, so it's hard to make yourself be organized with your paperwork at home. Set up a filing system for the things you have to keep, and know which documents you can throw away. Here's a few ideas to get you started:
- Keep copies of Tax Returns forever (you can store them electronically)
- Keep Supporting Tax Documents for 6 years (W2's, reciepts, etc.)
- Store Marriage Certificates, Birth certificates and Social Security cards in a fire safe box
One of the great ways to make sure you've checked all the boxes of your spring cleaning is to download this FREE Financial Spring Cleaning Workbook. Enter your e-mail below and then check your inbox!
DOWNLOAD YOUR FINANCIAL SPRING CLEANING WORKBOOK
& get weekly updates from The Practical Penny
How did it go? Do you feel financially fresh? Leave your tip to clean up your finances in the comments!