With tax season already over and done with, it’s the perfect time to organize your finances once again. This involves tidying up bank accounts, budget, debt and investments. It’s essentially like spring cleaning the entire house. You do it to get rid of clutter. Spring cleaning is the time to take out garbage bags worth of trash and around the same amount of things headed to the goodwill. In the case of your finances, you spring clean in a bid to get rid of unnecessary economic-related stuff—whether physical (old receipts and invoices) or in terms of monetary matters.
But why is it necessary to stay on top of your finances? Here are the top reasons:
1. Preparation of tax returns
If you want to maximize your tax returns, you have to work for it. You should start early in preparing for the next tax season
2. To keep on track
More often, you don’t really need a lot of the receipts and financial statements that we get. But have you noticed that at the time you need it, you have a hard time finding it? This is why it pays off to be organized. You will know where to get specific financial documents when you really need it. You can save on time and stress if you are organized.
3. To pay on time
When your things are organized—and that includes your finances, it’s easier for you to remember to pay regular bills. Because there is already a system, you will be able to pay on time and save on penalties. If not, there are a number of apps that could prompt you on days you need to pay particular bills. Here are some of the more reliable mobile apps: Quicken, Mint and Money.
One of the practical outcomes when you spring clean your house is that you get rid of things you don’t need—such as those too small pants still hidden in your closet in the hopes of putting them on one day. Take them out, send them to charities or give them to the less fortunate.
In the case of your finances, go over subscriptions you don’t really need like magazines (are you really reading them?), cable channels (do you have time to watch them?), some mobile apps (are you getting your money’s worth?). A financial planner suggests that you might not realize that when you add up most of your monthly subscriptions, it would come out to $400.
When you are spring cleaning your finances, focus on things that you don’t actually need. Like a landline, how much are you paying for your subscription every month? That can be converted to savings if you lose it. In this age where you can be contacted through your mobile phone or through social media, you no longer need a landline. Another extra expense you don’t need is gym membership.
How many times have you actually been to the gym since you got the membership? The sidewalks are free and so is the park. You can work out in these places. You will not only sweat it out, you will also enjoy nature.
How about your cable subscription? Have you maximized its use or were you just browsing the internet the entire time the television was on? These are economically important things that can help you save money. Saving money will help you to be on track to reach your financial goals, which is ideally set at the start of the year.
Spring is also the perfect time to assess your annual financial goal. Since you are clearing out clutter, your finances will be clearer to you than ever. If you are right on track to reaching your goal—well and good; now how can you achieve it at the least amount of time? If you’re not on track, then ask yourself what expenditures seem expendable so that you will be able to reach your target.
If you lose some of your unnecessary expenses, then that could easily cover the ground you are missing when reaching your financial target. Another way to do is by spending your tax refund wisely. More than half of the American population usually gets a tax refund. Unfortunately, most of these people also consider a tax refund as windfall. A refund is what it is—a refund. Meaning, it is your own money stuck in government coffers and so the Internal Revenue Service is returning the money to its rightful owner.
Now that it has been established that a tax refund is not manna from heaven, you should spend it wisely. Use the refund to pay debts or put it in an emergency fund. Spend it on something important and reach your financial target for the year.
There is also another way to maximize a tax refund by hopefully not getting any. You only need to sign a form with your employer to keep the tax deductions from your paycheck at a minimum. This way, you have more money to spend on your monthly expenses and more money for savings. Keep at least 10 percent of your paycheck (if you can afford it) as emergency fund or savings.
The development of some technology applications has made it easier for people to track down their expenses. And in doing so, they can improve their spending habits. Here are some great apps that will help you keep track of your finances:
Also, when you spring clean, you will find various garbage items that belong in the trash. It’s the same with your finances. There might be hundreds of financial papers that you don’t need that are still in various drawers. If there are files that you think are very important to you, back them up.
While we use computers in almost all activities either at home or in the office, they are not 100 percent dependable. We may lose some important data so we should always have a backup in the cloud. You can use Carbonite, to save important financial files. The system will let you save photos, documents, emails and a whole lot more.
Here are some tips on how long you should hold on to some paperwork:
Forever: personal documents like birth certificate, marriage license, social security, will, estate planning documents, health care directive and important documents for purchased properties like titles, etc.
Until the next one comes along: passport, purchase agreement for properties, vehicle title and registration, loan documents, insurance policies, warranties for appliances.
- Seven years: tax returns supporting documents.
One year: pay stubs (unless online) and medical receipts.
At least a month: credit card receipt, bank statement, ATM receipts, etc.
Now that you have cleaned your finances, try spending only cash. The great thing about going cash-only is that you will be forced to limit your spending to the cash that you have in your wallet. And that is if you don’t bring your credit and ATM card with you.
But that’s supposed to be the beauty of cash-only, you leave your other modes of payment at home. Another trick is to withdraw only what you need. This way, you will not be forced to stop by Starbucks. Anyway, there is free coffee in the office.
Doing these little things can go a long way for a person’s finances. One only needs discipline and self-control. And the less you use your credit card, the less you are likely to pay for interests. Now that you are spring cleaning, it is also timely to evaluate your debt load. Pay off debts as soon as you can in order to lessen payments for interests.
If you happen to be spring cleaning the house as well, why don’t you sell some stuff in order to earn money? You can pay part of your debt from the money you earn.
There are two popular ways to pay off debts. One is to choose the loan with the highest interest rate so you can pay off that loan that takes much of your hard earnings. This sounds the most practical, but this is not always the more motivational process.
The other alternative is to pay off the smaller loans then go to the bigger ones—the snowball effect. According to experts, this has a better psychological effect on the debtors because as soon as one small debt had been paid off, it gives one a determination to get the next one and then the next.
Speaking of psychological effect, spring cleaning can actually do wonders for your finances. Once you see the order in life, you immediately want all things in your life to take on order. So do more than just spring cleaning—clean your finances anything you can.