Just before Chinese New Year, the entire country goes into a spring cleaning frenzy. Families rush into tidying up their houses for the new year to usher in a new season of “good luck” which usually involves back breaking house cleaning and many grumpy faces.
Now here’s a question for you – when was the last time you did some “spring cleaning” on your finances? If you are scratching your head because you don’t know, then keep on reading because you’ll find out exactly what you have to do to refresh your finances!
Here are 5 steps you can take to “spring clean” your finances every year:
Step #1 – Evaluate Your Budget (and Spending)
The first step to spring cleaning your finances also happens to be the most important – evaluate your budget. If you already have a budget (or something resembling a budget) already, perfect! If not, it’s not too late to start building one (reading this will help you).
If your budget isn’t updated with your latest assets and liabilities – now is definitely the time to do it.
Using your budget as a baseline, you’ll need to evaluate your spending over the last six months (at the very least).If you have trouble sticking to your budget and can’t nail down exactly how much you’re spending each month and on what, this step is going to take time to go through.
After evaluating your spending (finally), any “problem” areas of your budget should become immediately apparent. Those are the financial areas you’ll need to make adjustments – this can mean cutting back on certain budgetary items (ex. dining out) or allocating more of your budget to something (ex. insurance).
Step #2 – Evaluate Your Financial Accounts
Having multiple bank accounts or credit cards isn’t always a bad thing. In fact, it’s a pretty smart move because having multiple financial accounts gives you access to the products, rewards, promotions and perks of different banks.
But if you have so many bank accounts that you can’t even keep track of them all – it’s time to close some accounts, consolidate others and switch old balances to new bank accounts (especially savings accounts) that have lower fees and better interest rates.
As for credit cards, the same rules apply. You’ll want to cancel cards that don’t offer many benefits, transfer balances from cards with high interest rates to cards with low or 0% interest and sign up for cards with better rewards.
Just make sure that when you cancel your credit cards, you don’t cancel out the cards that you’ve built the longest credit history with.
Step #3 – Ditch the Stacks of Paper
Spring cleaning involves tossing out items that you no longer have use for. Yes, that includes those cardboard boxes full of old bills, credit card statements, bank statements, loan agreements, etc.
No, you’re not going to just toss that stuff down the garbage chute (and increase your likelihood of being a victim of fraud).
No, you’ll want to shred those docs, but first, you’ll want to scan those documents and organise them neatly in electronic folders on an external hard drive or thumb drive (just don’t lose it!).
That’ll make it easier for you to stay financially organised (and will free up some room in your storage closet/bomb shelter for other things). Oh, and don’t forget to ditch the paper statements! Chances are your bank/utilities provider is charging you for paper statements – go electronic with your statements!
Step #4 – Take Inventory of Your Household Goods
There are two very good reasons why you should do this. First, by taking stock of your major household goods (TV, high-end electronics, luxury items, etc.), you make it easier to recover those items in the event of theft.
Just make sure you take photos and write down serial numbers when doing your inventory.
Second, because if you have home content insurance (and I hope you do!) you’ll want to inventory your household items so you can update your policy!
You don’t want to be in a situation where you can’t make a claim on your 6-month old 55-inch SMART HD TV during a residential fire because you didn’t update your home content insurance policy!
This step leads perfectly into the last one…
Step #5 – Evaluate Your Insurance Coverage
When was the last time you reviewed your insurance policies? Yeah, you might have reviewed them a year or two ago, but chances are A LOT has changed since then.
You might have married, re-married or filed for divorce.
You might have purchased a new home.
You might have taken up a new job that requires regular business travel.
You might have welcomed a new child (or two) into the world.
Well, I think you get the picture by now. The point is that when you spring clean your finances, you shouldn’t forget to evaluate your insurance policies as well – so you can make adjustments such as increasing/decreasing coverage or even comparing policies to find the right insurance policy for your needs.
When was the last time you performed a thorough spring cleaning of your finances? Share your thoughts with us on Facebook! For even more useful information on everything personal finance, visit MoneySmart today!
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