• Milad Taghehchian, CFP(R)

Giving Your Finances a Spring Cleaning



Are your finances in need of a face-lift? When opening your bank statement or confronting your credit card statement gives you the shakes, it’s time to do a thorough spring cleaning. Here are some tips for revamping your wallet and putting your mind at ease.

First, a budget.

Before you do anything else, you should establish a budget. Your budget needs to be practical, based on your actual financial commitments and not based on what you think you might spend on living expenses, or what you would like to be making. Calculate your actual monthly income and then subtract your firm monthly obligations, such as your mortgage, utilities, car payment and credit card bills. Then look carefully at your more fluid expenses, such as groceries, gas, entertainment and savings. As US News & World Report explains, this is where you can find your bad habits and make adjustments accordingly. Your final budget needs to leave you with expenditures that equal your income.

If you struggle with broad areas, try narrowing your categories. For instance, you may need to divvy up the amount each member of the household spends on clothing, or split entertainment into how much goes to cable television and how much is spent on concerts or sporting events. No matter what, your bottom line needs to equal out or else you are adding to your debt each month, creating a situation where you will never get ahead. Once you establish your budget, stick to it!

Tidy accounts.

When going through all those accounts, be alert to any lingering accounts you don’t use. Whether you consolidated debts or opened something for a trial period and forgot to close it, it’s the perfect time to do a purge. Make notes and close them right away. Along those same lines, if you still have paper bills and statements coming in, contact your financial institutions and utilities companies for electronic versions. You can also set up automatic payments for bills that are the same each month. It’s less paper to stay on top of and eases your bookkeeping burden.

Know what you’re worth.

Are you aware of your net worth? Your net worth is a summary of your financial standing, and as some experts explain it’s determined by comparing everything you own outright against everything you owe - your assets versus your liabilities. Assets are what you own, such as a paid-off car or boat. However, if you recently purchased a house and took out a mortgage loan, your bank likely owns the property, not you. One of your biggest investments is your home, and you can use an online home value estimation tool to help with your calculations.

Cleanse your credit.

The other important area to spruce up is your credit. Many people focus on cleaning up credit before major purchases, but some professionals warn it can take months to resolve certain issues. Request your credit report, and then resolve any errors on it. Errors include items such as incorrect names or addresses on your account, and can usually be attributed to clerical mistakes. Then as The Balance explains you should bring any delinquent accounts up-to-date. You can negotiate repayment with creditors or pay for deletion on your report.

The other substantial issue that can impact your credit rating is the amount of debt you owe. Any balances should be brought below your maximum allowance. Then improve your rating by paying them down to 30 percent or less of your credit limit. By making those adjustments in what you owe, you can significantly improve your rating. Also if you have lingering unpaid judgments, pay them off, and if student loans are in default discuss potential repayment options with the lender.

Freshen up!

Is your wallet ready for a spring cleaning? Create a budget, tidy your accounts, know your net worth and cleanse your credit. You’ll feel refreshed knowing your finances are in order!