How to Spring Clean Your Finances
In between clearing out your garage and basement, spend a little time on financial matters, too.
It's that time of year when the weather starts to get warmer and the snow boots can finally get packed away -- spring. And while you're no doubt familiar with the concept of spring cleaning, you should know that it extends well beyond organizing closets, sheds, and garages. The start of a new season is a great time to get your finances in order as well, and here's how.
1. Physically organize your records
Do you have important financial documents haphazardly stashed on and around your desk? Now's the time to get your records organized to ensure that they're available when you need them. Round up all the receipts that document business expenses and put them in a folder where they're sorted by date; you'll need that information to claim deductions on your taxes. The same holds true for receipts for charitable donations and medical expenses. Better yet, scan those documents, and organize and store them electronically. It's a great way to safeguard against losing them.
2. Get on a budget
If you're used to spending money at random, you may struggle to grow your savings account balance, and find yourself teetering on the edge of debt (or actually landing there) most months. The solution? Get yourself on a budget. To set one up, comb through your bank and credit card statements from the past six months or so to see how much your various expenses typically cost. List those expenses on a spreadsheet and see how your spending compares to your earnings. Knowing what you can and can't afford to spend in different categories means you'll be much less likely to fall into debt.
3. Check your credit score and report
You should check your credit report several times a year. The fact that you're entitled to a free copy from the three major credit bureaus -- Experian, Equifax, and TransUnion -- makes it easy. While you're busy shaping up on the financial front, request a copy of your credit report from your bureau of choice and review it. It won't show you your score, but you'll be made aware of any black marks that could be dragging that number down. That way, you'll know what areas to improve in, and if there's an error on your credit report that's working against you (like a debt that's not really yours), you'll know to correct it.
It also helps to see what your credit score is, especially if you're planning to make any major financial moves in the coming year, like buying a home. You can buy your credit score directly from FICO, but first, see if your bank or credit card company offers that number up for free.
4. See how you're doing on emergency savings
For solid protection against financial emergencies, you need three to six months of essential living costs in your bank account. If you're nowhere close to the lower end of that range, now's a good time to assess your cash reserves and make an effort to ramp up your savings. Having a budget will help in this regard because you'll know which spending categories are easiest to cut back on. By freeing up cash to plow into your emergency fund, you'll be able to build yourself a cushion in case things go wrong.
5. Assess your debts -- and pay off unhealthy ones
It's not unusual to have some amount of debt, but there's a difference between carrying a mortgage (which is healthy, financially speaking) and owing tons of money on a credit card (which is not healthy at all). Take a look at the various debts in your name. If you see that most of what you owe relates to credit cards, map out a plan to start paying those balances off. Once again, having your budget will be useful, because you'll have an easier time figuring out where you can spend less to free up more cash.
It's good to get organized as spring kicks off, but don't just limit yourself to household projects; spend time on your finances, too. A little effort in the coming weeks could help you close out the entire year in a more financially-solid place.
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