Monday, March 25, 2019
9-Step Financial Spring Cleaning
It is officially the first full week of Spring and I couldn’t be more excited. Birds are chirping, snow is melting, dog poo emerges, and I hope by now those pesky Christmas bills have been paid off. For me, this time of year always presents a new outlook. The first quarter of the year is almost over and it’s time to evaluate and plan. A Financial Spring Cleaning is in order so today I will give you 9 tips to do just that. Let’s get started!
1) Get Organized
If you are anything like me there is a pile of receipts already gaining strength in your office. Let’s nip that right away and start making it right. Chances are you have recently filed your taxes and had to do at least a bit of organizing for that. Keep that ball rolling. For the self-employed or anyone that can use deductions, organize your receipts. I would recommend using some sort of a spreadsheet. E-Statements can and should be organized too, so clean up that email inbox. PS: go paperless where you can, it’s just easier. Keeping an inbox clean is easier than finding a paper statement next March. Also, if you don’t already do this, set up alerts for when bills come out. It is not difficult to set a reminder for when something is due every month. Late payments are just bad business so don’t fall into that trap.
2) Budget Time Baby
Now that you are organized a little better, I hope, it’s time to implement or review your budget. Inflows and outflows are crucial to your success, so a budget is the best way to track both. It doesn’t matter how you do it, but balancing every month is key. Some use spreadsheets, others just use paper and a pen. There are also mobile apps like Mint and EveryDollar that can make it even easier for you. Start by putting all your fixed expenses down on paper. This can include housing, transportation, utilities and anything else recurring on a monthly basis that is essential. Next put in the family income. When subtracting expenses from income you have the surplus. This is what you must live on every month. If this number is too small, you either don’t make enough or your fixed expenses are too high, or both. That little bit of clarity will guide you on what you need to accomplish, ie: make more money. If this number is large and yet you feel broke every month you just learned something else. You spend too much damn money every month or variable expenses, like dining out, entertainment, etc. This little exercise tells you a lot about yourself and your habits so make sure you review it monthly, not just every March.
3) Savings/Debt Determination
Now that you have put together a basic budget, I hope, it is time to determine what you can put towards “Paying Yourself First.” We have all heard the phrase, but it is time to truly understand it. Paying yourself first means you take money from your monthly budget and put it towards financial moves that will better your future. Saving and investing on your paydays is paying yourself first. Paying down debt is paying yourself first. Paying down a mortgage faster is paying yourself first. This is why the budget is so important. After you have taken what you need to live, the basics, take a chunk and put it in savings or towards debt. It all fits together like a puzzle, so keeping your expenses low and your income high is what will allow you to save and invest. It also allows you to not accumulate debt. After you have finished your budget find a doable amount you can put every month towards your future and take it right off when you get paid. If you do this every month you will never be broke. If you do this every year you will eventually be wealthy, very wealthy.
4) Mortgage/Housing Review
I believe it is important to review your housing on an annual basis. The reason is simple, there could be inefficiencies. Mortgages are long. Very, very long. When you buy a home, you are excited and often miss the fine print. You also can be bled dry by small fees, and useless protection products. Also, do you have the best rate possible or even the best terms? You could be in line for a better rate now that you have been in the game for a few years. You could be in line to pay your mortgage down sooner if you got a raise or have some money on the sidelines. Take some time to review your annual mortgage statement. If you are a renter, what does that look like for you? Is your rent getting too high? Have you outgrown where you live? Do you want to be a homeowner? We often feel that housing is a fixed, concrete expense. While it is fixed, it doesn’t have to be set in stone. Little adjustments can save you dollars every month, so it is worth an annual review.
5) What if?
This is the crumby part of the post. I always ask my clients what they would do if. What if you got sick or injured? What if your spouse or child did? What if one of you died? What if one of you lost your job? What if your mom had to come to live with you? These are nasty questions, but they must be answered. Adequate insurance is the key to solving most of these problems. Adequate savings is the key to answering the rest of them. Everyone and I mean everyone, should have life insurance. I am not talking about expensive, useless coverage. I am talking about affordable, durable, coverage that covers the mortgage, or loss of income, or debts, or any gap that would be created if someone died. Everyone also needs some form of income replacement. If the paychecks stop, the bills still go on. Make sure that gap is filled as well. No one likes to think about “What If’s.” Trust me, it is better to ask what if, than what now.
6) Goals, Goals, Goals
A man without a goal is like a boat without a sail. There has to be something that gives you direction. I hear it a lot from my clients. “I don’t really have a goal for the next year, 2 years, 5 years.” If that is the case, don’t fret. Life is tough and sometimes the goal is just to make it to the end of the year intact. By the way, that’s a goal. Not making it to the end of the year, that’s not a goal. The goal is to not live like making it to the end of the year is an accomplishment. If you cannot think of a goal, think of what you dislike the most about your situation. Do you hate how little you make? Don’t we all? Do you hate being in debt? Do you hate feeling like you have no control over your situation? Do you hate your boss? Setting goals almost always start with eliminating pain points so you can focus on pleasure points. Take some time to jot down the things you want to accomplish over the rest of this year. After that focus on the next 2-5 years. If you set this 5-year framework but break it down into what you can do every month, week, day to get there, you will be amazed at what it does for your psyche and your wallet.
7) Along the lines of goals….
When is the last time you challenged yourself? Have you ever had a “No Spend Month?” What about a “booze cleanse” or any other vice you subscribe to? Do you set savings goals, or earnings goals, or personal growth goals? Here is the problem with most of society. We have made it relatively easy for the majority of people to just cruise through life. Now I am not saying that there aren’t challenges or that life is easy. Living a good life isn’t easy. Living a mediocre life is very easy. The difference between the two is how often you challenge yourself to do better. Small incremental challenges can add up to big differences. Health, educational, financial, spiritual goals are all part of the web that makes you a better person, for yourself and the ones you love. I would highly recommend creating a new challenge for yourself every month. You will be amazed at how it affects you.
I recently started a de-cluttering. I am on phase two of it, but the ball is rolling. Getting rid of unnecessary junk is very cathartic. It purifies the mind, body, and soul. Our lives have become an accumulation of crap. Instead of gathering, start giving. There are many people in our communities that need our old clothes, furniture, and other items they just can’t afford. We all should strive to be as minimalist as possible. Besides the fact that it just looks bad, being a hoarder costs money too. Getting rid of the stuff you don’t need will take a mental weight off you so I would recommend addressing it on the regular. Just a heads up, people can be de-cluttered out of your life too….
9) Game plan summer
I recently met with a client of mine and she was shaken by the cost of summer camp for her kids. Here is the thing about summer: It’s not cheap. Patio drinks, cottage vacations, trips to the beach, amusement parks, it all adds up. Even the extra gasoline needed just to get to and from these places can burn a hole in your wallet. It is almost April, so it is time to game plan what summer is going to cost you this year. If you take the next 3 months to get ready for those extra expenses, you will not have to play catch up in September when the kids are back at school. Just like Christmas, you know it’s coming. Why not be ahead of the curve instead of trusting Mr. Visa for all your summer fun activities.
This time of year is a great time to review your progress, plan your next moves and make a strategy for the rest of the year. Spring is a time or rebirth and growth. Why not make it a time of solid growth for your wallet and your mental state of mind as well. Doing so might make this summer your best one yet!
“The beautiful spring came; and when Nature resumes her loveliness, the human soul is apt to revive also.” – Harriet Ann Jacobs
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