Warm weather is a great motivator to tackle long-overdue projects. As we move into spring, there is one thing that requires annual cleaning: your finances. Financial planning is not a one-and-done task because life is constantly changing. We encourage you to ‘spring clean’ your finances every year to be sure the way you spend your money aligns with your lifestyle and long-term goals.
Here are a few areas to clean up at least once a year:
Following a budget will also keep you out of debt or help you work your way out of debt if you are currently in debt. Use a computer software program, or utilize the free budgeting excel templates to help create your budget. Include as much information as you can and review your budget regularly. Save your document to make changes as needed and share it with your partner to keep everyone in the house on the same page. Once your budget is created, it will need regular updates to consider potential salary raises, bonuses, or new expenses. Significant life changes like getting married or having a baby will drastically impact your budget and should prompt a review even sooner. Even if your circumstances have not changed, tax laws or other things outside your control could have. So, you might need to adjust your withholdings to avoid an unexpected expense when tax returns are filed.
We recommend clients save 20 percent of their income with the popular 50/30/20 rule; 50% of your budget for essentials like rent and food, 30% for discretionary spending, and at least 20% for savings. Look at the various places you save, including contributions to your IRA, bank savings accounts, etc., and combine those monthly inputs to calculate your total savings.
Automatic Renewals and Withdrawals:
Putting bills and memberships on autopay is a great convenience, but not dealing with them monthly has its downsides. When expenses are automatically withdrawn from your account, it is easy to set it and forget it. For each expense on auto-withdrawal, review a 12-month history of what you have spent, calculate the average per month, and ensure it matches what you have budgeted. Be sure also to audit memberships that auto-renew – like streaming services and gym memberships. There is no point in paying for a subscription you are not actively using.
Except for life insurance, you should have insurance policies re-quoted regularly to explore discounts and ensure you have adequate coverage. Auto, home, and umbrella insurance policies have flexible rates, and reducing those monthly costs can provide some cushion in your budget.
Spring cleaning your finances is also a wonderful time to discuss with your family what needs to be paid for in the coming year. Are there home renovations you want to make, required vehicle maintenance, or fun trips on the horizon? Planning for these one-time, special expenses makes it, so you do not have to dip into savings.