Winter’s long gone and spring has come!
It is that time of the year that you ready yourself for spring cleaning to get your house sorted and tidied. Similarly, spring is the right time for a fresh new start to clean up your finances and make new goals. Here are a few tips on how to kick start a financial cleanup!
- Check Your Credit
Start with your credit report. Order a few copies of your credit report. Your credit report will contain information on your loans, bill payment history, current debts, and other financial information.
You can get one free credit report every year from all the three credit reporting agencies- Experian, Transunion, and Equifax. You can also get these copies by making an online request, on sites such as the Annual Credit Report. Once you have your copies in hand, check to make sure that all the accounts that are listed are actually yours. You also need to check if all old debts have been stricken off your credit report.
- Understand Where You Stand- Know Your Debts
Once you have checked your credit rating, you will know exactly where you stand. It is important that you tabulate and record how much debt you have to be able to evaluate your next move. Many people do not make this simple calculation.
While it is without doubt a scary proposition, knowing your debts and how much you aren’t saving, will help you take that first step towards setting yourself up an attainable financial goal. Make a list of all your debts and loans such as your auto loan, mortgage, and credit card debts. Against each of these debts, jot down the interest rate. Multiply the two numbers to arrive at how much each loan in costing you each year.
- Evaluate Your Savings
If you do manage to save your cash infusion, where would you put it? Would you put it in a bank account that earns you a 1 percent return or less? Or, would you sink it into a money market fund that may pay you more or not pay you anything at all? Like you may already know, it is rather difficult to earn even 1 percent in the current market without taking on more risk. Time to calculate again! Write down the total amount in question and multiply it with the rate of interest that you can earn on it.
Now that you have arrived at a figure, take a minute to compare your findings from the last step. Would paying off a part of your debt help you save more money than you can earn on that same amount by putting it into savings? If yes, then you are better off tackling more of your debt.
- Update Your Savings Goals
With rising inflation in mind, it is critical that you re-evaluate your saving goals regularly. Ask yourself if you are still on track with your savings. Begin by taking a look at your emergency savings account and how much you have saved up over the years. Gauge whether you are where you hoped to be at this given point of time.
If you find yourself off target, dig deeper into your bank account history to understand where things derailed. When you tally the numbers you will be able to understand if you are overspending or using up money from your fund for non-emergencies.
A deeper analysis of your savings will also help you understand if you are not earning enough money, which in turn urges you to dip into your savings more often. If you feel that your earnings are low or the cash flow is insufficient to meet your goals, update your saving goals and begin again. On the contrary, if you find yourself earning reasonably well, but just overspending, exercise a little more self-control. You may also seek the services of a money buddy who will help you with your financial planning and keep you focused on your goals.
- Evaluate Your Salary
This can be a tricky one. Once you have evaluated whether you are sticking to your budget or not, it is time to focus on your earnings. Many employees are given extra responsibilities, but their salaries do not reflect the added duties. Review your salary and benefits from time to time and ask for a raise if you find yourself living from paycheck to paycheck despite months of extreme belt tightening.
America is in a recession though, everyone know has to do more with less or at least maintain the status quo.
If a raise is not on the cards, there are several other avenues to earn a bit more and make ends meet. You can also add a few dollars to your kitty by taking a close look at your withholdings. For examples if you have had a baby or experienced any other major life change, you may benefit from filling out a new W-4 form to adjust your withholdings.
Also, take into account any additional windfall in the form of a gift or payday check or even a tax refund. This will give you more flexibility since you will have more money to work with. Use the money to pay off a part of your debts or put it away into an emergency fund.
- Be SMART
SMART, that stands for specific, measurable, attainable, relevant, and time-limited, is the financial planning mantra that has been used for over 2 decades in helping people set and meet their goals. Use this to your benefit and set yourself a specific goal that you think is reasonable and attainable. Do not go overboard or get discouraged. While you set yourself new financial goals, remember to remain patient and focused on them. Saving for a first house, paying off a debt, or building up a retirement nest egg not only takes time but also patience.
- Budget Brilliantly
When we say budget, we do not mean sacrifice. Get creative with how you spend and what you spend on. This will help you inch your way towards your goals. The best way to budget smartly is to first retrospect and put down the different things you generally spend on. Once you have noted down your discretionary spending habits such as dining, clothing, and entertainment, lower the budget on each. And, if you cannot bring yourself to resist the temptation to spend, look for suitable bargains that will help you cut corners and save more!
- Goals Change and Grow
Your life is forever changing, and so should your goals. The plateau you wanted to reach as a fresh out of college young adult may have been higher. Reality has set in and again, the economy is not what it used to be. Taxes are even higher, that less money for you to invest and save. Do not panic, go with the flow! Be prepared to adjust your goals as your needs and realities change.
Remember, financial goals cannot be achieved overnight or even in a week’s time. They take time and perseverance. Do not tuck your goals in the attic or a junk drawer! Keep them visible, and revisit your goals every few months to remain on track.