This year I ran over an extraordinary amount of article suggesting a spring clean personal finances. So far I advised my customers to "clean" and reorganize their finances during late fall so they get ready for end-of-year adjustments and the budgeting process. So I started to think about whether a financial spring clean is a recommendable habit.
Here are my pros and cons for keeping or starting the habit of financial spring cleaning:
If you are the type of personality who gets energized during springtime and directs this energy into deep cleaning and organizing everything, it might be a great idea to include your finances - after all, it can be a relaxing part of the cleaning job as it is not physically demanding. However - go for this ONLY if you have plenty of time and dedication. If you keep it as the last part to cross off your spring cleaning to-do list, chances are high you rush through it and complete only part of the involved steps (check the list later in this article).
As springtime is also the time to file your tax return, it seems logical to include also a deep cleaning of your finances. This way you are getting ready for next years taxes - and will remember the issues you should to in a different way.
Updating your financial plan during spring can prevent overspending during the rest of the year - especially if summer vacation planning is still ongoing.
If you tend to be "over rolled" by the arrival of spring and thereby getting under time pressure with spring cleaning, gardening, hobby season (your own or the children's) it is far better to reserve time for analyzing and reorganizing your finances at another time of the year. Either late fall or January are good alternatives.
If your situation regarding retirement savings or health insurance is different year-to-year, you should take care of your financial plans before the enrollment periods are starting, i.e. during late fall.
If you hate deep cleaning activities but prefer keeping up with regular maintenance, you might be better off spreading the tasks over the whole year. BUT, this assumes that you are responsible and doing your regular (monthly) maintained tasks. Most people in this category even enjoy this type of work to a certain degree. By the way, the same principle applies to general cleaning too...
If you hate deep cleaning AND regular maintenance type of work, you have two possibilities: either your situation will be messy and you are happy with it OR you have to hire professional help. Again this applies to both household cleaning and personal finances - you can either hiring a cleaning professional or a Daily Money Manager.
No matter at which time of the year you are deep cleaning your finances, there are quite a few steps involved. The following list is a guideline for your planning. Depending on your individual situation you might need only part of the tasks listed.
Take a snapshot of your financial inventory including all the accounts, cards, debts, investments, and insurances you have
Take a snapshot of your spending habit: analyze your recent spending and look out for hidden and bad spending habits. Maybe you ate out less at restaurants, but you spent too much on ordered meals. Or you spent too much money on online shopping.
Check whether you pay for any unused subscriptions and cancel them.
Clean out some of the paper. Not all the paperwork has to be kept forever. Check out my older blog article on this topic.
Review your account setup: do you have bank accounts or investment accounts you don't use anymore? Close them, it makes your tracking easier. Consolidating accounts helps you get the full financial picture quicker.
Review your insurances (car, house, health, etc): Is the coverage still up-to-date, do you have additional insurance needs? Make necessary adjustments.
Define your financial goals, both long-term and short-term. Is your first priority paying down debts, or are you saving towards a house or education? Are there any special expenses coming up during the next 12 months like longer vacations, weddings, expensive gifts, or health costs?
Update your budget (aka spending plan) by taking into account your findings from the first steps. Don't forget to define how you will track your progress: pen&paper, Excel sheet, budgeting SW, phone app. Choose a method that matches your abilities and time schedule. Remember that without constant tracking and fine-tuning a budget is no help at all.
Automate your payments and savings as much as possible. This not only saves you time but also reduces the risk of missed payments and their costs.
Tax planning: check your retirement saving contribution, investment strategy and adjust your withholding if needed. you might want to consult an investment planner or tax professional.
Last, but not least: Check your credit report. Go to https://www.annualcreditreport.com/ to order your reports and check them for their accuracy. You might also want to distribute the checks evenly over the year, so you check one credit bureau every 4 months.
"Should you Spring Clean your Finances?" will be the topic of our April zoom-meeting of the "Money Talk with a Daily Money Manager"-series hosted by Rita Kuehnis, SDS Smart Daily Services LLC. The meeting is scheduled for Thursday, May 20th at 6 - 7 pm PST. Register here