Time to Spring Clean Your Finances

Share this post

Financial Spring CleaningWe wait for spring to deep clean our homes, maybe the same goes for your finances. Can you remember the last time you scrubbed through your finances? If not, then it is time get them in order. Don’t be worried about where to begin when organizing your financial life, follow these steps to get your financial spring cleaning started recommended by your favorite Chicagoland law firm.

Take a Financial Inventory

The first thing to do when organizing your finances is to collect all your information in one place. Next steps include reviewing your financial inventory are credit reports, bank accounts, bank statements, debt, credit and debit cards accounts, retirement and HSA accounts, other investments, and legal documents. You can streamline your storage by creating a digital file folder online to save electronic versions of everything. Scan any important documents and save in this file as well. Include a copy of all the usernames and passwords for your financial accounts.

Declutter Your Accounts

It is easy for all sorts of accounts to accumulate as years pass. Could be a 401(k) from an old job, an HSA that you can’t use with your current health care plan, or a bank account you no longer use. Only keep the accounts you use and have direct access to. Having accounts you don’t monitor can put you at risk of identity theft. Take time to close unused accounts and roll them over into ones you keep track of.

Keep in mind though that canceling a credit card will change your debt-to-credit ratio and could lower your credit score. If you’re planning to apply for a mortgage or auto loan soon, see if your bank will allow you to lock the card instead. You’ll keep the account, but no one will be able to use it.

Organize Your Paperwork

Even in our very digital world, a lot of financial documents still come on paper. Take time to go through all those papers and shred old documents. Most financial documents can be thrown away after three years including tax returns, receipts, home-improvement records, medical bills, utility bills, credit card statements, bank statements, and investment real estate records. Records of loans that have been paid off should be kept for seven years

Wipe Out Bad Spending Habits

We waste a lot of money every month on impulse and habitual spending. These expenses feel small but add up to thousands of dollars every year. Cutting out bad spending habits now can make a big impact on your future. Calculate how much money you throw away every month on habitual and impulse purchases. Try to cut down on these purchases by 10% every month or experiment with giving them up altogether for a season.

Change Your Bank

Are you getting the best possible interest rate on your savings account? Check out what other banks are offering. Many of the best online banks offer FDIC-insured accounts with savings accounts that yield up to 1.85% interest while requiring no minimum balances or fees. You may not want to leave your brick-and-mortar bank, which is fine. It’s a good idea to have a few bank accounts. Separating your emergency funds from your spending accounts will help you avoid accidentally draining them.

Automate Savings

By automating your savings, you can use that extra money to build your emergency fund or save for vacations without thinking about it. Decide how much you want to save and set up a direct transfer to your savings account. For a real opportunity to save automatically, sign up for a banking app like Chime that has an autosave feature. Chime rounds up each transaction to the nearest dollar and sends the money into a savings account.

Review & Replenish Your Emergency Fund

Make sure your emergency fund is fully funded. An emergency fund can be the difference between an event being a crisis or just an inconvenience. Three to six months of essential expenses saved in a separate bank account is a good rule of thumb for an emergency fund.

Detox Your Debt

Sometimes you have debt sitting around that isn’t actively being paid down. Don’t waste money paying interest that you could use to invest for retirement. If you want to pay down your debt fast, try methods like the debt snowball or debt avalanche. Pay down your debt by going from smallest to largest loan (debt snowball) or highest to lowest interest rate (debt avalanche.) Either method will help you pay off your debt faster.

Reassess Your Retirement Contributions

Saving for retirement isn’t something you set and forget. Check in occasionally to reassess your plans and make sure your investments are on track to get you there. When it comes to saving for retirement, a good goal to shoot for saving is 10% to 15% of your income. If you’re starting later or saved less than 10% in your twenties, then try to have three times your annual income saved by 40 or four times your annual salary by 50.

Create or Update Your Estate Plan

According to a 2019 study from Better Place Forests, Americans are more likely to have watched a movie or TV show featuring Dwayne “The Rock” Johnson (53%) than make any end-of-life plans (41%). Everyone needs an estate plan no matter how much or how little you own. Start by setting up a a ill or trust or both. Designate beneficiaries to pass along assets to people outside of your will. You will most likely need at least one power of attorney to act on your behalf if you’re unable to, a living will, and a letter of intent. Contact us to make sure your estate plan is where it should be.

Getting your finances organized doesn’t take that much time, yet so many people put it off until it’s too late. Don’t wait any longer to get things under control so you can feel confident you are set for the future. Feel free to contact us or any Chicagoland law firm.