At this time of year, many people start thinking about doing some spring cleaning around the home. This typically includes things like clearing out cluttered closets and basements, wiping down baseboards and washing windows.
However, this can also be a good time to do some financial spring cleaning. Here are a few tips for cleaning up your personal finances.
- Order your free credit report. You can obtain a free copy of your credit report once a year from each of the three major credit reporting bureaus (Experian, Equifax and TransUnion) by visiting Annualcreditreport.com. Review your report carefully for possible errors and contact the credit reporting bureau directly if you spot any mistakes. Since you can order up to three free credit reports a year, one strategy is to order a credit report from each reporting bureau every four months. This could be especially important if you plan to make a major purchase sometime over the next year, such as a new home or car.
- Review your debt and spending. These two financial concepts go hand in hand. Excessive spending can lead to an abundance of debt — which if not controlled, can result in drastic financial consequences. Your monthly credit card statement is a good place to start. Many people are shocked when they review their statement line by line and item by item. Impulse purchases and recurring charges for subscriptions and memberships may seem small when viewed individually, but when combined they can really add up.
- Review your budget — or create a budget if you don’t have one. Household budgeting is the best way to keep debt and spending under control. But most peoples’ financial situations change over time, so it’s smart to take a fresh look at your budget at least once a year and make any necessary adjustments. If you don’t have a household budget, take the time now to sit down and create one. It doesn’t have to be fancy or complicated. Start by simply listing your total income on one side of a ledger and your total expenses on the other side. Subtract expenses from income to see how much discretionary income you have each month. If this number is negative, figure out which expenses you can cut to bring your budget into balance.
- Start an emergency savings fund. Four out of 10 Americans currently don’t have enough money saved to cover an emergency expense of $400, according to a report prepared by the Federal Reserve Board. This hammers home the importance of having an emergency savings fund you can tap to pay for unexpected expenses like home, car and appliance repairs. Some financial experts recommend stashing as much as three to four months’ worth of living expenses in a liquid savings or money market account. If that sounds intimidating, aim for a smaller amount, even if it’s just a few hundred dollars. The most important thing is to get started saving now.
- Adjust your tax withholding. Many people got an unwelcome surprise this tax season when their refunds were smaller than they expected — or worse yet, they owed more money to the IRS. This was often due to the fact that they didn’t adjust their tax withholding with their employer to account for changes that occurred due to the Tax Cuts and Jobs Act. Now is the time to make these adjustments so your withholding more accurately reflects the amount of tax you will owe this year. Talk to your payroll or HR department about how you can adjust the amount of money that’s withheld from you to pay for taxes each pay period.
- Max out contributions to your retirement plan. If you didn’t contribute the maximum amount of money allowed by law to your IRA, 401(k), or other retirement plan last year, make an effort to do so in 2019. The 2019 IRA contribution limit (for traditional IRAs and Roth IRAs) is $6,000, or $7,000 if you are 50 years of age or over in 2019. The 2019 401(k) employee contribution limit is $19,000, or $25,000 if you are 50 years of age or over in 2019.
- Re-examine your banking relationship. It’s a good idea to take a fresh look at your banking relationship from time to time to make sure you’re getting the most value that you can. For example, are you paying monthly account fees? How much interest are you earning on your checking and savings funds? And what kinds of rewards are you reaping on your credit cards? If you’re paying excessive account fees or not receiving competitive interest rates on savings or rewards on credit cards, do some shopping around to look for another bank. The banking industry is becoming more competitive and you may be able to find a bank that waives fees, pays higher interest rates and offers more attractive rewards.
Please contact us if you have any questions about these and other financial spring cleaning tips.