Spring is the perfect time to clean up your life. Most of us already spend some time each year doing spring-cleaning. But most of us limit it to the physical clutter in our lives. Have you ever considered spring-cleaning your finances? We all accumulate financial clutter that needs to be dealt with if we want to keep our finances in good condition.
Financial challenges are one of the most stressful aspects of life. Finding happiness is challenging when your finances are a mess.
If you want your spring-cleaning to be easy, the key is to refrain from making a mess in the first place. Your finances aren’t any different. Everything is easier if you maintain good records and have an intelligent system to keep everything organized.
- Most of your financial records are probably already available online. It may be unnecessary to print them all out. It’s time consuming and expensive. You might want to consider scanning your documents and keeping everything online. Just remember to back up your data religiously.
Getting an accurate picture of your spending is very important. The money that you have left after paying your bills serves as the seed from which everything else grows.
Without extra money left over at the end of the month, you simply have nothing to save or invest. If you have nothing to save or invest, it’s difficult to deal with life’s inevitable financial challenges, plan for your retirement, or leave anything to your heirs.
- Record every penny you spend for the next 30 days. This might seem like overkill, but most people are surprised by how much they spend on the little things over the course of a month. It’s the coffee, magazines, lunches, and sodas at the gas station that can really add up. That money could probably be better spent elsewhere.
Categorize your budget. Knowing exactly how your money is spent can be just as important as where it’s spent.
Evaluate your spending. After keeping careful records for a month, you might be surprised at where you’re spending your money. Do you see any areas that stand out as being excessive? Where can you cut back and how can you put that money to better use?
- The common areas that can get out of hand include: Groceries, eating out, entertainment, clothing, and personal items. Think about ways you can reduce these costs.
- The other primary drain on your finances is most likely debt.
Debt is a real financial challenge. It’s like trying to run a marathon uphill.
Sit down and look over all of your debt. Develop a reasonable plan that will eliminate it as quickly as possible. Most importantly, develop habits that prevent your debt from growing larger. Just think about all the extra money you’d have each month if you were completely debt-free!
Since you’ve already done a detailed analysis of your spending, it’s simple to create a new, more realistic budget.
Hopefully, you found several places to cut back on spending and can increase the amount you save and invest each month.
- Go back through your spending records and develop a budget that’s realistic and attainable. You already have most of the data. It simply needs to be tweaked and adjusted appropriately.
- It can be helpful to continue to track your spending daily or weekly. Sit down daily or once a week and review your spending. Keep your records up-to-date.
- Evaluate where you are relative to your budget. Staying on track is quite easy, provided you constantly review your status versus your budget. Things are easy to fix if you notice the issue early, but much more challenging if you find yourself hundreds of dollars off-course.
- Create a plan to get back on track. Many months, you’ll end up with unexpected expenses. That’s part of the reason that emergency funds exist. Taking money from other categories can mitigate many challenges. It might be necessary to limit other expenses to reach your budget goals for the month.
- Continuously assess your budget. The one-month snapshot you took at the beginning is a great starting point, but spending can vary from month to month. You might find that your initial budget was too strict or lax. It will probably take a few months to figure it out.
It doesn’t matter how much money you have, everyone needs a budget. Living without any financial boundaries is a recipe for disaster.
Most of us would like to refrain from thinking about insurance but it is a subject that truly need not be avoided.
Life insurance serves to replace your income if you die. The trick is determining how much you need.
- Think about your current lifestyle. Ideally, life insurance will permit your family to continue living in the same way they currently live, even without the benefit of your income.
- Advisors at Family For Life Insurance advise having enough life insurance to cover your debts, including your mortgage. The idea is to leave your family debt-free, but there’s also the consideration of living expenses.
- It’s important to have enough life insurance to cover your share of the monthly bills and college expenses. Without debt, your spouse might easily be able to cover the monthly expenses.
- You can reduce the amount of life insurance needed depending on your savings and the value of your investments and retirement accounts. The more money you have, the less life insurance you’ll need.
Life insurance isn’t an enjoyable topic, but it’s definitely worth talking about. Your family will thank you, and you’ll sleep better at night knowing your loved ones are free from financial worries.
Many people opt out of . However, consider how you’ll survive if you’re ever unable to work for an extended period of time. How will you pay your mortgage or rent? What about your other bills?
Social security pays relatively little and it only compensates in the event that you’re completely unable to work. It also doesn’t pay for the first 5 months.
Think about how much you need to pay for your critical expenses and consider getting a policy that will cover that amount. Keep in mind that disability insurance payouts aren’t taxed, so the replacement percentage of your income is less than you think.
Talk to an insurance expert at Family For Life Insurance to analyze your situation and obtain the disability coverage that’s right for you.
Now that you have a realistic budget and your spending and insurance are under control, it’s time to consider your savings and investments. Did you remember to include these categories in your budget?
Many individuals save and invest whatever is left over at the end of each month. That mindset often results in having no money at all left over. Most of us are good at spending whatever is available to us. The smart approach is to treat your investment and savings accounts like any other bill and “pay” them each month.
- Invest automatically. One of the best ways to ensure that your investments grow over time is to invest regularly. It’s very easy to set up an automatic withdrawal that will take money out of your bank account at regular intervals and place it into your brokerage account or a specific investment.
Pay yourself first and optimize your investments each year. If you can do that and develop an emergency fund, you’re doing great.
Reviewing your credit report and making the necessary corrections is also important. A poor credit score results in higher interest rates on loans and credit cards. A poor credit report can even inhibit your ability to find a job. More and more employers are looking at credit reports before making hiring decisions.
Poor credit can cost you dearly.
Keep your credit report in good shape with these steps:
- Order copies of your credit reports. The three major credit bureaus will provide one free copy of your credit report each year. You’re also entitled to a free copy if you’ve recently been turned down for a loan or credit card.
- Get your credit scores. Your credit report usually includes an estimation rather than your official credit score. To be considered for financing and conventional loans, your credit score needs to be in the range of 620 or higher. If your score is lower, interest rates will be considerably more costly. The best rates go to those with scores above 720.
- Review all of the negative information. Make a note of all the negative information that’s incorrect on your credit report. Take the time to examine your reports carefully. Nearly everyone finds errors.
- Challenge any negative information in writing. While the credit bureaus provide a means to challenge your credit online, this helps them, rather than you. Did you know that any challenges that aren’t verified and responded to within 30 days will be found in your favor?
- Be persistent. Persistence will eventually get you what you’re after. Credit bureaus want to make money by selling credit reports. It costs them money when they have to deal with you and your correspondence. Just keep challenging the negative information and you’ll see your credit score increase.
Fixing your credit report errors is only half the battle. You may need to add positive credit and develop good habits to take your credit score to a higher level.
Feel free to email us at [email protected] to receive a free copy of our Step-By-Step Credit Repair eBook.
Who wants to think about dying? It isn’t a pleasant topic, but it’s important nevertheless. Estate planning is best done with the assistance of an expert.
Review your estate planning each spring:
- Estate planning is important for everyone. An estate plan helps to ensure that your family’s financial needs are met after your death.
- Review your will. If you haven’t drawn up a will, it’s time to do so. Many think that only the rich need wills, but nothing could be further from the truth. If you have children or want to decide who will get your assets, a will is necessary. The other option is to let the courts decide for you. Wills are commonly amended after a marriage, divorce, or the birth of a child. Deaths in the family will also require a review of the will. Perhaps you’ve started a business or have a new, significant asset.
- Review your assets. Take an inventory of all your assets. These include your bank accounts, retirement accounts, real estate holdings, insurance policies, and any business interests.
- Power of attorney. A power of attorney allows you to designate someone to make financial decisions for you in the event that you’re unable to decide for yourself.
- Living will or health care proxy. A living will spells out how certain medical and life-saving measures are applied if you’re unable to make decisions for yourself. A health care proxy designates someone to decide for you.
- Ensure that everyone is on the same page. Squabbles are common when it comes to inheritances. Talking to everyone in your will ahead of time can help to minimize confusion and arguments after your death. Ensure that your wishes are clear.
These are just the basics regarding estate planning. But, the details ought to be discussed with an attorney who specializes in this area because the topic is quite complicated and details vary from state to state.
Just be sure to review your estate plan each year and seek the expert advice you need.
Use the spring season to get a better handle on your finances. Since you’re already in the cleaning mode, why wouldn’t you clean out your finances, too?
Consider how your financial situation will change for the better once you get organized, assess your spending, deal with your debt, save some money, increase your investments, optimize your insurance coverage, and complete your estate planning. How would your life change?
Your situation is unique in many ways. Adopt this process or adjust it to fit your requirements.