When springtime rolls around, the change of seasons may inspire you to tackle the dustiest corners of your home — sweeping, mopping and organizing until everything is satisfyingly fresh and orderly.
You can extend a similar strategy to your money. A bit of financial spring cleaning at this time of year can pay dividends by helping you spend only where it counts, keeping you on track for your future goals and preparing you for emergencies and other expenses that come up.
Here are five steps to take to spring clean your finances this year:
1. Find and plug financial leaks
If you don’t pay close attention to your cash flow, it can be easy for money to slip through your fingers without you realizing it. And small expenses here and there can really add up. Financial spring cleaning season can be a great time to take a look at your spending to identify and plug any financial leaks.
Catherine Arnet-Valega, a Certified Financial Planner and founder of Green Bee Advisory, said that one of the most common areas where people overspend without realizing it is on food.
This is especially relevant after sharp increases in both grocery prices and restaurant prices in early 2022. The U.S. Department of Agriculture predicts that these increases aren’t going anywhere anytime soon — the price of eating out is projected to rise between 4% and 5% in 2022, and the price of groceries is projected to increase between 2% and 3%.
“Even if you mostly eat at home, pay attention to food budgets, make dinners/lunches ahead, and choose your grocery store wisely,” Arnet-Valega said.
Another area where people end up spending more than they may think is subscriptions. According to a 2021 survey from consulting firm West Monroe Partners, consumers are now spending an average $273 per month on subscriptions, a 15% increase from 2018. And most folks don’t even realize it: That monthly number was 3.4 times what people thought they were spending on subscriptions. After all, free trials expire and leave you on the hook for a service’s monthly fee, or you may end up using a service far less than you thought you would.
Comb through your bank and credit card statements to make sure that you’re using all of the subscriptions you’re paying for and cancel any of the ones that don’t seem worth the cost. Apps like Truebill and Trim can even do the cancellation heavy lifting for you.
2. Check in on your retirement goals
Spring is a great time to refresh your focus on your long-term goals, like saving for retirement.
Arnet-Valega said that you should examine your 401(k) and other retirement plan contributions at least once per year so you can work toward maxing them out.
“The max changed in 2022, from $19,500 to $20,500, so employees should increase their paycheck deferrals so they can get that extra $1,000,” she said. “If they cannot get the full amount in, they should increase their deferral at least slightly each year.”
You can use a retirement calculator (like this one from Vanguard) to help you get a clear picture of the state of your retirement savings. You simply enter your current age, expected retirement age, income, how much you’re saving each year and how much you’ve already saved. Then the tool will show you what your nest egg will be by your expected retirement year.
That $1,000 you contribute to meet the new 401(k) limit could turn into $3,200 in 20 years, assuming a 6% rate of return. Seeing these numbers can give you the push you need to boost your contribution percentage. Your future self will thank you.
3. Replenish your emergency fund
Many financial experts recommend setting aside at least three to six months of your living expenses in a special savings account for emergencies. That way, if you lose your job, need a surprise car repair or find out you have to replace your boiler, you’ll have the cash on hand to pay for it.
Did you have to dip into your emergency fund to cover an unexpected expense recently? If you did (that’s what it’s there for, after all!), as part of your financial spring cleaning, set up a plan to replenish your account.
That could mean setting up an automatic transfer of $100 per paycheck to your emergency fund, plus directing any windfalls (like credit card cash back or a quarterly bonus from work) to the account as well.
4. Plan for irregular expenses
Have you ever been caught off guard by an irregular expense that you probably should have planned for? (Don’t worry, we’ve all been there.)
Whether it was a tax bill, lump-sum annual renters insurance payment or tuition bill that surprised you, the best lesson to take away from the experience is how to prepare for the next irregular expense.
Take stock of all your irregular, recurring expenses and add them up, then divide that number by 12. The resulting number is what you’ll need to save each month in order to cover these occasional expenses. In a way, it’s like taking an irregular expense and turning it into a regular one that’s easier to manage and plan for.
5. Pay down credit card debt
If you find yourself with revolving credit card debt, you’re far from alone. In early 2022, household credit card debt clocked in at $860 billion, according to the Federal Reserve Bank of New York.
Figure out how much can you afford to put towards your debt each month. Then, experiment with a credit card debt payoff calculator (like this one from Experian) to see how long it will take you to pay off your debt at that rate.
If it’s going to take you a while to pay off your credit-card debt, you might look into opening a balance transfer card. These cards offer 0% APRs for a set amount of time, often a year or more, so you can save hundreds or more in interest while you focus on paying off your debt. Just make sure you’re on track to pay off the card before the promotional period ends and the card starts charging interest on your balance.
The benefits of financial spring cleaning
Though it can seem daunting at first, when you finish the financial spring cleaning process, you’ll likely feel more in control of your money than you did before.
That’s because you can now feel confident that you’re not losing money to expenses that aren’t worth it, like subscriptions you don’t use, and know that you’re taking the right steps to set your future self up for success.
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