Could Your Finances Use Some Spring Cleaning?
Deep-cleaning your finances is actually as satisfying as it sounds. It involves getting into every nook and cranny of your financial life to repair what’s not working, identify your good habits, and create needed systems and structures. You emerge from this process with an intimate understanding of how close you are to achieving your short-term and long-term financial goals. Exciting, right?
But you have to put in the work to earn this financial glow. Here’s how.
Clean Out Your Wallet
You didn’t think we were only talking metaphorically cleaning, did you? We use our wallets every day, yet we often fail to care for them. If your wallet needs a deep clean, consider the following moves. Smooth out the wrinkles from the dollar bills and organize them so they are facing the same direction. By doing so, you’ll have an accurate assessment of how much cash you’re carrying. And as more and more stores are going cashless during the pandemic, you may even want to take most of your cash out of your wallet for the time being.
For bulky receipts, use an app like Expensify, which allows you to snap a picture of your receipts and use the photo to categorize the spending. Also, shred all expired credit cards, rewards cards, membership cards, and empty gift cards so only your most relevant cards remain. Finally, store all business cards in a central place in your home office or download a business card scanner app to catalog your contacts.
Order Your Credit Report
Your annual credit report, which can run over 100 pages, compiles your history of managing credit and paying off debt. It includes information such as how much debt you’ve accumulated; how you pay your bills (on time, partial payment); and whether you’ve filed for bankruptcy, had a home foreclosed or vehicle repossessed, or have a lawsuit judgment entered against you.
By checking the report every year, you’ll be able to verify your information or dispute any inaccuracies. This is key since banks, businesses, potential employers, and landlords review your credit report and score to determine your creditworthiness and to assess your trustworthiness. Going over your data can be a scary and tedious task, but you’ll be more knowledgable and in control in the end.
Review Your Budget
Many of us are experiencing a new set of financial circumstances given our current public health crisis. Even if this weren’t the case, regularly combing through your budget to audit cash flow, identify saving patterns, and evaluate how money is spread across essentials and nonessentials provides insight into how to adjust your subsequent saving and spending.
Conduct a Net Worth Analysis
Your net worth is a concrete measure of your wealth. It is the sum of what you own (your assets) minus the sum of what you owe (your liabilities). You can calculate your net worth with pen and paper, an online net worth calculator, or an app like Personal Capital or YNAB. Net worth trackers guide your behaviors to improve your finances—for example, you’ll be able to see how buying a car today would impact your net worth several years from now.
Start Estate Planning
Estate planning is the collection of preparation tasks that manage your affairs in the event of incapacitation or death. Estate planning isn’t exclusively for the wealthy or the old—it’s for all of us. Most estate plans are set up with the help of an attorney experienced in estate law. The lawyer will help to draft a will or testament, a legal declaration by which a person, the testator, names one or more people to manage their estate and provides for the distribution of their property at death. A lawyer can also help limit estate taxes by setting up trust accounts in the name of beneficiaries, who are the individuals designated as the recipient of funds or other property under a will, trust, or insurance policy.
Shred With Confidence
When deep-cleaning your financial house, a shredder is essential. It safeguards you from becoming a victim of identity theft by allowing you to securely dispose of documents that contain sensitive information such as account numbers, your full name and address, and Social Security number. It’s also kind of fun.
It also helps you reduce the paper clutter in your home. The Internal Revenue Services (IRS) website offers guidelines for how long you should hold on to certain financial documents. Generally speaking, you’re supposed to store most tax documents for three years, but if you did not file a return or you filed a fraudulent return, the IRS suggests keeping those records indefinitely. When it comes to maintaining records of student loan payments, car notes, and mortgage payments, it’s best to hold on to those documents indefinitely.
Originally Appeared on Architectural Digest
