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Personal Financial Spring Cleaning: Ten Step Process

Personal Financial Spring Cleaning: Ten Step Process

March 10, 2024

I was getting the family ready for Spring Break and a little Spring cleaning when I thought how similar my Spring cleaning was to an annual review of our personal finances. Every Spring brings another tax season, and that is a suitable time to take a deeper dive into your family finances. Everyone has a different situation, but there are several steps you can take annually to clean up your personal financial life and get rid of those financial dust bunnies. I will list here my ten favorite steps to this process:

  • Create a list of what keeps you up at night. We all have them… those annoying financial to-do’s that we keep putting off.

The source of many of our anxieties can be financial, and just writing a list of them can be cathartic. Spend some time doing this until you cannot think of any more items. Afterwards, go through the list and write down what you need to do to eliminate each item. Then, make a consolidated list of all those to-do’s and set goals to get them done. Now, you have a plan of action.

  • Evaluate your goals and progress. When you do a Spring cleaning of your home, the result is a clean house and that is your goal. You have something to work toward, and it keeps you on track (most of the time). Without goals, we can get distracted and pulled in different directions. Sometimes, that may mean we have a lot of half-done things, and nothing gets finished. Our financial lives work in much the same way.

Start this part of your financial Spring cleaning by writing down your goals from memory. Do not pull out your list, yet. You can use the goals generated in the first exercise, “What keeps you up at night,” and add them to this list. Once you have written your goals down, see if you can produce something that is not on your list. Then, pull out your old list and compare. Eliminate goals on the older list that are no longer important. Transfer goals to your new list that you forgot about and that you still want to pursue. Evaluate your progress on each of the goals from the old list and rethink your priorities. Prioritize your goals from the most important to the least important.

  • Make budget adjustments. After reviewing your goals and progress, as well as listing the financial things that keep you up at night, you should be well-prepared to examine your budget.

If you have an old budget, evaluate how well your budget worked and what you could have done differently. Transfer your old budget to a new budget worksheet or list. Add to this budget a savings line item for your goals. When you add up all the expenses and savings in your budget and subtract that from your income, the result should be zero or a positive number. If you do not have enough income to meet your new budget, then adjust it until you do have a zero or positive cash flow. If you cannot get a zero or positive number, you will have to reassess your financial goals and adjust or eliminate your lower priority goals, reduce or eliminate other budget items, or increase your income.

  • Review all automatic subscriptions. There may be several places for you to look but you should be able to see them on your credit card statements or bank statements.

Make sure you go back twelve months, so you can catch the annually recurring subscriptions. If you have a lot of apps on your phone or computer, there is usually an app store subscription area in your app store menu that will list recurring subscriptions. Look over your cell phone bill and your television bill to identify other recurring subscriptions, as well. If you find apps or television programs that you do not use or are no longer interested in, try to drop the subscription. Sometimes, you will get a warning that you still have several weeks or months of service that will no longer be available. You may get a pro-rated reimbursement, but even if you do not, if you no longer use them, now is the time to drop them. Otherwise, they may end up on your list again, next year.

  • Review progress of investments. If you have investment accounts, you need to proactively review those accounts to make sure they are allocated appropriately, that your accounts are secure, and that you have access to all your accounts.

Look through your investment activities to see if there have been any unauthorized withdrawals. There is usually a reporting function that allows you to only look at withdrawals. Also, look at your investment performance and determine how much risk you are taking. If you do not know how to do this, you may need the services of a financial advisor. Make sure you are taking a level of risk that you are comfortable with and that you are getting the returns you should expect, given the level of risk you are taking.

Once you have determined whether your risk tolerance and returns are appropriate, adjust your asset allocation and rebalance, as necessary.

  • Review beneficiary designations. All financial accounts should have beneficiary designations or transfer instructions if they are not joint accounts. You should keep a summarized list of all these accounts somewhere for easy review.

Make sure this summarized list is up to date. This can be an easy exercise if you are married or have a partner with no other relatives or people who depend on you financially. You just make sure you have a beneficiary for every account. However, if you have several people counting on you financially or if you have charities you support, you may have to go through this list more thoroughly to make sure your assets will go to the right people if something happens to you. One of the hardest things to imagine is your ex from many years ago getting your retirement assets even though you have been remarried for twenty years. I have seen that happen, and the spouse spent a lot of money trying to get the courts to reverse it. The spouse was able to get the decision reversed but, at great expense. The deceased could have avoided this with an annual beneficiary check-up.

  • Review credit scores. This is a fantastic way to know how well you are doing, financially. It also lets you know if someone has stolen your identity.

You can get one free credit report from each of the three credit reporting agencies each year. Those agencies are Equifax, Experian, and TransUnion. For more information on your credit report and how to get a copy, you can go to the United States government credit reports site at usa.gov/credit-reports.

Since you can get a free copy from each agency once a year, if you get a report from one agency at a time, you can get one every four months. Check the report for any new accounts that you did not set up or any inaccuracies. Work with the agencies to make corrections, if necessary. Otherwise, make sure your credit score is improving or is healthy.

  • Confirm that all debt and bills are up to date. It is a clever idea to have your debt and monthly bills listed in a place where your significant other or someone you trust can have easy access.

Use that list and check each account online to make sure you are not missing any payments or are getting behind. If you have a lot of debt, set a goal for paying off your debt. There are several ways to prioritize paying it off and many apps or calculators that will help you with the process. Once you pay off a debt, you can roll that monthly payment over to another debt and increase your payments. Over time, you should see your debt coming down.

  • Complete taxes and compare to last year. One of the biggest expenses we have is our taxes.

If you can identify ways to lower your taxes, you can free up more money for your goals. If you have done your taxes for the year, use your Spring financial cleaning to compare your latest tax returns to your returns from last year. Look for ways to reduce your taxes. If you paid more in taxes this year, try to figure out why. If you had an increase in your income, the increase in taxes should be proportional. That might also be an opportunity to defer income taxes through increased retirement plan contributions. You will want to discuss this with your financial advisor and tax professional, to make sure you identify opportunities.

  • Recommit to keeping a clean house (financially). Just like Spring cleaning your house, you need to relish the renewed cleanliness of your personal financial life.

Reward yourself for getting everything done. If you create a list, checking off items that you have completed will give you a sense of accomplishment when you look back. If you have generated an increase in savings or have paid off a debt, use a small percentage of that to reward yourself like going to a movie or going out for dinner. Another great exercise is to write down how you feel now that you have cleaned up your financial life. Share with your significant other what you have accomplished and how your situation is better, now that you have completed this exercise.

If you went through this routine and feel like you have a lot left to do, keep in mind that this financial Spring cleaning may reveal some issues that will take a lot of time and effort to fix. However, it is better to find those issues before they fester and become bigger issues. This can happen with your home Spring cleaning, as well. We often find places the dogs have torn up or need painting or repaired. Over time, though, you should be able to strengthen your personal financial life by doing this regularly.