Spring Clean Your Finances: 8 Simple Steps for a Fresh Start

Spring is the time to clear the junk and make your home sparkle. Why not do the same for your finances? A spring refresh to tidy your finances can help you shave unnecessary expenses and save a bit of extra cash each month. It’s also a great time to evaluate your long-term financial goals. Here’s eight simple steps you can take to spring clean your finances.

Step 1: Review and Update Your Budget

Your budget is the cornerstone of your financial well-being. It directs your money toward necessary expenses, wants, and goals. Central to your budget is ensuring it reflects your circumstances and aligns with your financial goals.

Review your budget. Revisit every category and decide what changes need to be made. Look for areas you can cut back. Have you been eating out too often? Are you spending too much on clothes and shoes you just don’t need?

Identify unnecessary expenses and make cuts. Are you no longer using your gym membership? Can you cut one of your streaming services? With a realistic budget, you’ll have a better chance of sticking to it.

It may be time to revisit your budget plan. A popular option is the 50/30/20 plan. With this plan, you split your monthly income into needs, wants, and savings. You allocate 50% of your after-tax income to expenses you can’t avoid. This would include housing, food, transportation, utilities, childcare, and unavoidable necessities. Then, 30% of your budget goes toward nonessential living expenses. Travel, entertainment, dining out, monthly subscriptions, and shopping fall into this category. The final 20% bucket is allocated for paying down debt and creating a financial cushion. This is where you would focus money on building up your emergency fund, saving through your 401(k) or 403(b), and paying off debt.

Step 2: Consolidate Your Debt

If you have multiple loans and credit cards at various lending institutions, your financial spring cleaning should include ways to consolidate debt. Debt consolidation combines your debts into one payment. This minimalist approach will make it easier to manage your accounts, lower your interest rates, and improve your credit utilization ratio, which may help improve your credit score.

Two ways to consolidate debt:

• Balance transfers. Transfer your credit card balances to one card with a lower interest rate and better benefits. Once approved, the funds transfer can take a few weeks, so make payments on your card until the transfer happens.
• Debt Consolidation Loan. A debt consolidation loan is a personal loan that combines your debt into a single loan with a predictable, fixed monthly payment.

Consolidating your debt can give you control and empower you to manage your day-to-day cash needs and pursue your longer-term goals. 

Step 3: Evaluate Interest Rates and Terms

What’s one way to lower your credit card interest rate? Ask. Credit card companies want to keep customers. So, they may be willing to lower your interest rate if you have a history of on-time payments, have good credit, and you ask.

Before you call:

• Know Your Credit Score. Your interest rate is based on your credit score when you applied for the card. Credit card companies won’t tell potential customers beforehand what interest rates go with what score, but the better your credit score, the lower the interest rate you’re likely to receive. If your score has improved since you opened your account, you could qualify for a lower rate.
• Review Your Payment History. You might have leverage if you’ve been a good customer for several years. When you call, highlight your on-time payment history. If you have a few bumps in your history, that’s okay. Hardships like unemployment, divorce, or illness may have caused a financial setback and led to missing payments, but the credit card company may be willing to work with you if you have a prior history of on-time payments.
• Compare Offers. Credit card companies don’t want good customers to leave. Research the interest rates of competing credit cards. It can help to mention competing offers from other card issuers with lower rates. Come to the conversation with as much information as you can. Save any pre-approval emails or mailers you receive to reference during the call.

If the credit card company denies the request, ask them to help you understand the steps needed to improve the situation. Once those steps are taken, call again and ask them to reconsider.

Step 4: Automate Payments

Setting up automatic payments involves scheduling transactions between your bank account and a vendor or company. Instead of logging in each month to make payments, you can automate regular expenses such as rent, credit card bills, phone bills, or other subscription services.

By establishing automatic transfers, you can enjoy the following benefits:

• Reduced Late Fees. Since payments are scheduled, you won’t miss due dates, which minimizes the chances of late payments and associated fees.
• Improved Credit Score. Making payments on time is a crucial factor that affects your credit score. Automatic payments help ensure that you never miss a due date.
• Increased Certainty. With automatic payments sent electronically, you won’t have to worry about issues like postal theft or delayed delivery.
• Time Savings. Setting up multiple payments will take a little time, but the process works automatically once the initial schedule is set. You will still want to monitor your payments regularly to assess whether they’re still essential.

Step 5: Analyze Saving and Spending Habits

Make savings an itemized line in your budget. Get into the habit of maximizing your savings with a tangible financial goal. This way, you’ll have funds aside for this purpose instead of saving only if money is left over at the end of the month. An ideal savings goal is measurable, time-related, and specific.

Break down goals into:

• Short-Term. These are goals with a time horizon of one year or less. A fundamental short-term savings goal is building an emergency fund. An emergency fund is three to six months’ worth of living expenses you can dip into to cover unexpected medical bills, fees, or if you’re ever faced with a layoff.
• Medium-Term. These savings goals are usually between one and three years and could include saving for a vacation, new car, or house down payment.
• Long-Term. Retirement is the most common long-term savings goal. If you have children, saving for college also would fall into this bucket.

Track your progress as you work toward your short-, medium-, and long-term financial goals.

Step 6: Review Your Credit Report

A credit report contains information related to your creditworthiness. It organizes your credit history — accounts, mortgages, debt, and payment history — showing an overall financial snapshot. The data calculates your credit score, which affects how easily you can rent a home, make large purchases, or pay over time.

You can access your credit report for free once per year from each of the three credit bureaus — Equifax, Experian, and TransUnion — to get a quick view of all your credit accounts. Monitoring your credit report is a helpful way to track your finances and safeguard yourself from fraud. It also allows you to review your report and familiarize yourself with your finances. You may even find ways to improve your credit score.

When reviewing your credit report, look for:

• Identity Errors. These errors may include things like the wrong name, phone number, address, or accounts belonging to another person with the same or similar name.
• Incorrect Account Status. Look for closed accounts reported as open and accounts incorrectly reported as late or delinquent.
• Inaccurate Data. Review for accurate balance information, credit limits, payment dates, or debt listed more than once.

Maintaining good credit requires attention to detail. If you see something that looks wrong, you can dispute it with the credit bureau.

Step 7: Organize Financial Documents

Organizing your financial documents, such as tax records, receipts, bank statements, and loan documents, can contribute to your financial success. An organized system lets you access documents quickly, manage your money effectively, and make informed financial decisions.

Get organized by:

• Inventorying Your Accounts. Gather your bank statements, which can be physical or digital. You’ll want to pull out bank accounts, 401(k) and 403(b) retirement plans, and credit accounts, which make up your financial picture. Clearly label each document.
• Organize Your Documents. Reduce clutter by switching to electronic statements instead of paper statements. Shred and dispose of outdated materials.
• Back Up Your Digital Documents. Protecting your information from viruses and cyberattacks is crucial to organizing your finances. Back up digital documents on an external hard drive, password-protect the files, and update storage periodically.

Step 8: Plan for Tax Returns

Since tax season also falls in the spring, it’s prime time to revisit your tax information. Review your most recent tax return. Did you get a big refund? Or did you owe more than you planned? W-4 withholding affects the amount of federal income tax deducted from your paycheck. 

The amount of federal income tax withheld varies by person. The withholding amount depends on how much you earn and the information on your W-4. Adjusting your W-4 helps ensure you pay the appropriate taxes during the year. Life changes like marriage, divorce, birth or adoption of a child, purchasing a home, or getting a second job may require adjustments to your withholding. You can submit a revised Form W-4 at any time during the year, so revisit and adjust if anything happens throughout the year.

The IRS’s tax withholding estimator can estimate how much income tax should be withheld. Discuss your withholding information with a tax professional to ensure you have the correct amount taken out of your paychecks for taxes.

Polishing Up Your Finances With TFFCU

Personal financial building requires ongoing attention and course corrections. A financial refresh is a powerful way to regain control and set yourself up for success. 

Incorporating these strategies into your financial cleanup can help you maintain or improve your financial situation. Having a spending plan, decluttering your financial documents, getting organized, and refreshing your financial goals can set you up for financial success in the months ahead.
The Focus Federal Credit Union can help you spring clean your finances by creating an individualized plan to get you out of debt fast. Contact us today, and let’s work together to polish your financial future.