4 Easy Steps to Spring Clean Your Finances
As the cold weather finally begins to subside, it's time to give your finances a spring cleaning.
Here are 4 easy steps to get things in order:
Schedule a “Money Date” to assess your financial situation, and treat it like you would any other important appointment. Plan something fun immediately afterward like dinner out or a movie so that you begin to associate reviewing your finances as something to look forward to. Begin by collecting all your financial documents in one place and organizing them into categories. Review what your goals were at the start of the year and how much progress you’ve made. Even if you’ve had a few setbacks or you’re not where you thought you would be, give yourself credit for the effort you put in. It’s about progress, not perfection. Appreciate how far you’ve come.
Set new goals for yourself or adjust existing goals accordingly. Prioritize your goals based on your core values (those things that are most important to you like family, adventure, or security) and the resources - money and time - you have available. Segment your goals into short-term (less than a year), medium-term (1-5 years), and long-term (5+ years). Even if you don’t have the money to fund them all right now, write them down so they keep you motivated to free up money that you can put toward them. And set up automatic deposits to make it easier to save so that you can achieve your goals faster.
If you’re getting a tax refund, use it to pay off high-interest credit card debt or to add to or start an emergency fund. A good general goal (dependent on your individual financial situation) is to have 3 months of living expenses in an emergency fund to protect your finances in the event of job loss, the dog needing surgery, or your car needing repairs. Think of it as insurance against having to dip into your “fun money” when you encounter the inevitable emergency, or against going into debt. If you don’t have any credit card debt (yeah, you!), look next to paying extra on any debt above 10%, and then any debt about 5%. And don’t forget to set aside a little something for a small splurge like dinner out or that new pair of shoes you’ve had your eye on. It’s important to enjoy your money too!
Finally, organize your budget using the 60/20/20 approach. Allocate 60% of your take-home pay toward necessities (monthly and non-monthly expenses), 20% toward fun (10% for monthly spending and 10% for long-term wants like travel, birthday and Christmas gifts, and large purchases), and 20% toward “future you” - paying extra on your debt, contributing to your emergency fund and/or saving for a downpayment on a house. If your percentages are a bit out of whack, don’t worry. You may live in a very high-cost-of-living area where your expenses are more than 60%. If that’s the case, you can use the 80/20 rule. As long as your expenses and fun money (both monthly spending and longer-term fun) total no more than 80% and you are putting 20% toward “future you” (saving for your needs), you’re good!
Take a moment to appreciate all the hard work you've put into your finances so far and enjoy the fruits of your labor. It’s a great idea to repeat this process every quarter and any time you have a major life change like a new baby, a job change, the purchase of a home, etc.
Make a vision board, talk about your dreams frequently, and break down your dreams into SMART goals (specific, measurable, achievable, realistic, and time-specific) so that they become a reality and motivate you to do the hard stuff like paying off debt.
And if the goal you really want (like a trip to Paris) isn’t achievable right now, shoot for something more manageable, but still exciting, like a fun beach vacation. With determination and focus you’ll get there. The point is to keep moving forward.