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  • Matthew Crum

Spring Cleaning your Financial House

Finally, it’s that time of year when the weather really starts to warm up (hopefully), we enjoy getting some fresh air, and when most engage in the age-old pass time of Spring Cleaning. There’s just something about opening the windows, dusting off the cob webs and getting rid of old or unwanted items around the house that gives us a renewed feeling of being unencumbered and thinking more clearly.

Spring also happens to coincide with everyone’s other favorite pastime, filing taxes. These two events that most Americans participate in every spring provides us with a great opportunity to extend our “clean up and get organized” bug to an area that often goes neglected: your financial house. Below is a checklist of three financial Spring Cleaning tasks that can help declutter and destress your financial life, and leave you feeling more confident on your financial path.

Cash Flow Clean Up - Out of sight is out of mind

We’ve all said it before: “Where did my money go this month?”. Usually, it’s when we’re paying our credit card balance for the previous month only to be caught off guard by a number we weren’t expecting. The flow of cash into and out of your accounts is one of the most important things to keep track of in personal finance. It provides us insight into where our money goes each month and allows us to evaluate whether or not we’re happy with those decisions. Following are three common (and easy to implement) ways you can clean up your cash flow and benefit from the power of awareness (or lack thereof):

Review your subscriptions - In the day and age of monthly services (Netflix, Spotify, etc.) that are conveniently billed to our Credit Card, it’s more important than ever to review active subscriptions in order to avoid the cost of paying for services we are no longer using.

Create or review your budget - Many people set financial goals for themselves such as saving $250 per month towards a down payment a future home, but when our planning meets real life, how do we do? A personal budget is an important tool to help keep track of how and where we’re spending our hard-earned cash to ensure that it’s going towards the things we want.

People generally resist making a budget because they think they don’t have the time, or they don’t want to feel the pressure (or guilt) of following one. However, a budget doesn’t have to be a hard and fast numbers that we must obey every month, creating the feeling of some kind of self-imposed financial prison. On the contrary, a personal budget is a tool to help be more aware of where our money is going each month enabling us to make better-informed decisions with our money. And with all the tools we have at our disposal these days, creating and monitoring our budget is easier than ever.

Start an Automatic Savings Plan – On the other hand, a lack of awareness can also be a power wielded for good, case in point, the automatic savings plan. Automatic savings plans have continued to grow in popularity as it’s easier than ever before to set up, and of course, they work exceedingly well! Similar to the way a 401K account works, by creating an automatic transfer from our main bank account to a separate account (savings, investment, etc.) we can save towards accomplishing our goals, but aren’t necessarily forced to feel the “pain” of saving.

This effect is made possible because we’re saving money we didn’t even know we had yet! When we check our bank accounts to take a financial inventory, we may consciously (or subconsciously) allow ourselves to be a little more liberal with our spending, or force ourselves to batten down the hatches based on the amount of money in our account. Setting up an automated transfer can remove the money before we’ve even noticed it’s there, eliminating the possibility that those funds will be used for a less-worthy cause.

Take an Inventory of Accounts (Assets & Liabilities)

Many of us have old accounts that are no longer being actively used such as old credit cards, bank accounts, and even retirement accounts from previous jobs that we have long since left. In the spirit of spring cleaning, taking an inventory of our accounts enables us to observe the current state of our financials before evaluating any adjustments that may need to be made. Use this opportunity to organize (make a list of all your open accounts) assets & liabilities, and consider the benefits and drawbacks of closing or consolidating accounts to simplify your financial life and get your money working in the most productive way for your financial goals.

Assets - While most of us don’t look forward to tax season, it can serve as a great catalyst for individuals and families to draw attention to accounts that may go under the radar the remainder of the year. Many of us have old 401Ks, IRAs (from previous 401K accounts), old checking or savings accounts, and even investment accounts. Tax time is a great opportunity to review (and possibly consolidate) current accounts since you’ve likely had to collect information on many of them for tax filing purposes. Additionally, it’s equally as important to review your account’s performance periodically to ensure that your hard-earned cash is working for you in the best way it can based on your current and future goals.

Liabilities – Creating a plan to address outstanding debt and open lines of credit are important component of almost every person’s financial well-being. Unfortunately, many people choose to avoid reviewing liabilities altogether because it can be uncomfortable and overwhelming to think about. The alternative however, can be far worse. While the scope and complexity of creating a cohesive plan for outstanding liabilities is beyond the scope of our discussion today, the first step of that process fits in perfectly with our discussion: Taking an inventory of your current assets AND Liabilities.

Purge the Clutter

Holding on to important financial documents is an essential part of keeping our financial life organized. However, may times individuals and families are unsure of the rules surrounding the retention of important financial docs. So, in order to ensure that we don’t throw away anything important, we keep it all! Now maybe you are very organized with tabbed folders lined up chronologically by year in alphabetical order. In my experience however, it’s far more likely that you have a large box marked “important documents” where everything from last month’s gas bill to your previous year’s W-2 is conveniently stored.

Take this opportunity to review that “Box o’ Docs” and separate the important from the irrelevant. Start slow, separate your documents into two piles, Shred and Keep. Aside from the obvious benefit of helping us stay organized and being able to easily find important information we need quickly, shredding unnecessary documents that contain sensitive information can also help reduce the chance of that sensitive info getting into the wrong hands.

For those looking for some general guidance on how long certain documents need to be kept, I’ve included a link below to a great article from Consumer Reports that outlines a general list of documents to keep, and for how long. Please bear in mind that the article from Consumer Reports provides general rules of thumb, and there are specific situations that may require you to keep certain documents longer than the article indicates.

Wishing you a wonderful Spring season full of happiness and budding with endless possibilities.

Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax or legal advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Matthew Crum, and all rights are reserved. Read the full Disclaimer

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