A quick guide to revamping your finances this spring
As March 19 heralds the arrival of spring, it signals the commencement of the annual ritual of "spring cleaning" for many households. Yet, amidst the scrubbing and dusting of our homes, another crucial area warrants attention: our finances. Just as tidying up our living spaces can bring order and savings, so too can organizing and streamlining our financial accounts. Allocating time in the upcoming weeks to "spring clean" our finances can yield significant benefits and savings throughout the year.
Below are ten ways you can spring clean your finances, setting you up for better money management throughout the rest of the year.
1. Check your credit report
A fundamental step in organizing your finances this spring is to review your credit report. It's crucial to scan for any inaccuracies that could be adversely affecting your credit score, such as incorrect personal details, balance discrepancies, or accounts stemming from identity theft.
Surprisingly, errors on credit reports are more prevalent than commonly assumed. According to a Federal Trade Commission study, one in five Americans is likely to encounter errors on at least one of their credit reports. Moreover, complaints regarding credit report inaccuracies have more than doubled from 2021 to 2023, escalating from 165,129 to 443,321, as reported by Consumer Reports.
Fortunately, accessing your credit report from each of the three major credit bureaus—Equifax, Experian, and TransUnion—is now easier than ever, with AnnualCreditReport.com offering complimentary reports on a weekly basis. Not only does checking your report serve as a proactive measure for rectifying errors, but it also serves as an initial step for those aiming to enhance their credit score.
2. Get rid of unwanted subscriptions
Chances are, you're shelling out cash each month for subscriptions you neither need nor remember signing up for, gradually chipping away at your budget. An effective strategy to reclaim some of that money—be it a little or a substantial sum—is to purge yourself of unnecessary subscriptions.
Unless your TV is permanently glued to your eyeballs, chances are you don't require more than one or two streaming services, such as Netflix. Moreover, if you initially subscribed to binge-watch a specific series, it's highly likely you've forgotten to cancel now that you're all caught up. Beyond entertainment subscriptions, a plethora of other services could be silently draining your income each month, spanning meal-prep deliveries, dating apps, to music streaming platforms.
Consider employing an app capable of monitoring your monthly subscriptions and facilitating their cancellation, such as Rocket Money or PocketGuard. Many of these apps boast additional features geared towards enhancing financial management.
3. Sell your unwanted items
As you spring clean your attic or basement this year, reconsider before discarding everything. Some of the forgotten items gathering dust may hold surprising value. Classic video games, vintage toys, and Boy Scout memorabilia, among others, have been known to fetch thousands of dollars on platforms like eBay, Mercari, or Poshmark. Before you hastily donate those old boxes to your local Goodwill, take a moment to see if any of your unwanted items might be worth reselling.
4. Put an estate plan in place
If you've been overlooking the importance of estate planning or procrastinating on it, now is an opportune moment to take action. According to the Caring.com 2024 Wills and Estate Planning Study, only 32% of Americans have a will in place, marking a 6% decline from the previous year.
Interestingly, 40% of Americans cite insufficient assets as the reason for not having a will. However, it's crucial to recognize that an estate plan offers benefits for individuals of all financial backgrounds. Without one, the state assumes control over distributing your assets, potentially leading to prolonged legal battles for your loved ones.
For those who already have an estate plan, it's essential to periodically review it, especially following significant life changes. Additionally, ensure that the beneficiaries listed on all your accounts are current, not solely those outlined in your will. Beneficiaries designated on documents such as life insurance policies and 401(k)s take precedence over those named in a will.
5. Review your insurance policies
This spring, take the opportunity to cut costs by reassessing your insurance policies and securing the most competitive rates available. Explore various insurance providers to obtain quotes and compare prices. Additionally, if you haven't already, contemplate consolidating your home and auto insurance for potential savings. According to Progressive, bundling these policies can yield an average discount of 7% on your auto policy.
Consider implementing these strategies to save money across different insurance categories: discover eight techniques to reduce life insurance expenses, uncover 12 methods to decrease auto insurance premiums, and explore six approaches to find the most affordable home insurance options.
6. Maximize credit card rewards
Furthermore, it's prudent to assess the credit cards in your possession. Are you fully capitalizing on the benefits they offer? Evaluate your spending habits to determine which cards provide optimal cashback rewards for your most frequent expenses. Additionally, take note of any supplementary perks provided by your cards, along with any sign-up bonuses that could bolster your savings over the course of the year.
6. Go paperless with your financial documents and statements
If you're still receiving paper statements from financial institutions, consider switching to paperless notifications. This applies to credit cards, loans, brokerage accounts, and even bills. Opting for paperless reduces household clutter and is environmentally friendly. With digital statements, tracking your finances becomes more convenient as all statements are consolidated in one accessible location.
Regarding existing paper records, many institutions offer the option to upload important documents into a secure digital vault. Once you have a digital copy, you can typically dispose of the paper version. It's essential to retain certain records, such as tax documents from the past seven years and any paperwork pertaining to active loans, whether in digital or paper format.
7. Plan for future tax seasons
To alleviate the annual burden of spring cleaning, some opt for scheduled deep cleaning sessions throughout the year. Similarly, tax planning demands attention at various intervals, extending beyond the tax-filing season. Whether it's before or after Tax Day, integrating tax-efficient strategies into your financial plan remains beneficial at any time.
Consider incorporating a combination of the following tactics:
1. Tax-loss harvesting: This involves selling securities at a loss to offset capital gains in taxable investment accounts, thereby reducing your taxable income.
2. Tax-aware asset allocation: Different types of accounts are subject to varying tax treatments. A tax-aware asset allocation strategy considers these differences to potentially enhance after-tax returns.
3. Tax-favorable investments: Certain investments, such as municipal bonds, tax-efficient mutual funds, and 529 plans, offer opportunities to save for diverse financial goals while also providing tax advantages.
8. Roll over your old 401(k)
If you've changed jobs recently, it's essential to consider rolling over your old retirement contributions. You can transfer them to your new employer's account or opt for an IRA, which offers greater investment flexibility and account control.
Rolling over your old 401(k) can offer several benefits, including greater investment flexibility and potential cost savings. By consolidating your retirement accounts, you can streamline your financial management and gain more control over your retirement savings. Additionally, leaving old 401k plans untouched can lead to accumulating fees over time, impacting your retirement savings negatively.
To initiate a rollover, start by contacting your new employer's retirement plan administrator. You can then request a direct transfer of funds from your old 401(k) into your new account, without incurring taxes or penalties. Be sure to consider factors such as investment options, fees, and account features when selecting the destination for your rollover.
9. Set up and plan your sinking funds
A sinking fund refers to the money set aside each month for anticipated expenses that occur periodically but not on a monthly basis, such as car maintenance, home repairs, vacations, weddings, or holiday gifts.
These funds are advantageous as they allow gradual saving over time and prevent the need to dip into emergency funds to cover these expenses. It's essential to list anticipated expenses for the upcoming months or years and establish sinking funds accordingly to ensure preparedness when these expenses arise.
To create an effective strategy for sinking funds, start by identifying potential future expenses and estimating their costs. Next, prioritize these expenses based on urgency and frequency, allocating funds accordingly. Set up separate accounts or designate specific portions of your budget for each sinking fund to ensure clarity and accountability. Don't forget to regularly review and adjust your sinking fund allocations as needed to accommodate changing circumstances and new financial goals.
10. Update your budget
Regularly revising your budget allows you to adapt to changes in income, expenses, and priorities, ultimately helping you stay on track towards your financial goals.
The primary step in budget revision is ensuring that your spending aligns with your current life circumstances and values. Take the time to reassess each category in your budget and determine necessary adjustments. It's essential to maintain a realistic budget to enhance your chances of success and long-term adherence.
To update your budget effectively, start by reviewing your income and expenses to determine any fluctuations or new expenditures. Next, reassess your financial goals and priorities, adjusting your budget allocations accordingly. Be sure to keep your budget realistic and flexible, allowing for changes as needed. Regularly monitoring and updating your budget will help you maintain financial stability and progress towards achieving your long-term financial aspirations.
The bottom line
Spring cleaning your finances is more than just receipt organization or budget trimming. It's about embarking on the remainder of the year with a renewed confidence in your financial management.
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