If you feel like the past few months has been stretching your finances, it might be time for some financial spring cleaning. This is a perfect time to get you to look at and revisit your finances to help you identify areas you can improve on. You could have set goals at the beginning of the year but life happens. There are things that are out of your control that come your way. The only thing you can do is make adjustments to help you stay on course.
Take the health crisis for example. At the beginning of 2020, there is a good chance that you never expected things to turn out the way it did. You could have made big plans at the start of the year like going back to school. You might even be starting to put a downpayment on a house you have been saving up for a few years. And then the pandemic hit.
All of a sudden, a lot of people are getting sick and emergency rooms of hospitals are filling up quickly. You then get an order to stay at home in a bid to help curb the spread of infection. This affects your job, income, business, and general way of life. It was at this point where you needed to make some serious adjustments on your finances. The same idea is behind financial spring cleaning.
You need to make sure you constantly review your plans you have set early in the year. For one thing, it helps you stay on top of your goals. Financial adjustments could change the speed by which you get to your goal. But the idea is that you keep on moving in the right direction. Here are a few things to consider when realigning your finances at this time.
Financial spring cleaning includes budget adjustments
One of the most important financial tools you will ever have is your household budget. Its simplicity is what makes it effective. But it can be deceiving especially when you have not been using one for a long time. The bottomline of having a budget is to make sure that you are aware of all the money coming in and out. To do that, you need a comprehensive list of your income and expenses.
You can be traditional and use pen and paper to write everything down. There are a few mobile and web applications you can use to help you create your budget. The important thing is that your list is as comprehensive as you can make it. Jot down every single source of income you have and the same goes for your expenses.
Once you have that, your goal is to be able to cover your expenses with your income. If you are not able to do that, you need to make adjustments quickly. The quickest way would be to cut down on your expenses. You can also find a way to increase your income. You can either get a side hustle or look into an income-positive hobby.
Revisit your financial goals
Financial spring cleaning also involves going back and revisiting your financial goals. It helps to know where you are with the targets you have set at the top of the year. Keep in mind that the goals you set should always bring you closer to your long-term goals. It can be early retirement, buying a house, or being able to set up your dream business.
Checking up on your goals can help you understand where you are lagging behind. You can then make the necessary adjustments to try and catch up. But remember that it is perfectly fine to slow down on some goals in order to prioritize immediate financial concerns. This is true especially with the health crisis people are going through.
If you need to make sure that you are able to save more for your emergency fund, then do that. You might even choose to increase your insurance coverage to give you peace of mind in case you or members of your family get sick. The important thing is to not lose sight of your goals even when you need to make adjustments.
Staying at home could have made you subscribe to several online services. Though it does make things a lot more bearable, it is a good idea to streamline these subscriptions. For one, you can save money if you cut out the ones you rarely use. You do not need several movie streaming accounts if you can make do with one. This is important as Forbes shares that about 6 million traditional cable TV subscribers switched to streaming services in 2020.
The same goes for music and everything else. You can even check your mobile plans and check if you can streamline phone plans for you and your family. Everyone is at home most of the time so it might make sense to make adjustments on your plan. The goal with financial spring cleaning is to find a way to cut down on costs without sacrificing your needs.
Look into your credit card use
You will easily find people who are quick to blame their credit cards for their miserable financial situation. They are struggling to make ends meet because they are way in over their heads with their credit card payments. Statements come in from several creditors and they do not have enough to cover the payments for all of them. But you need to remember that you are in full control of your credit card use.
What you pay for it and how much of your credit you use is all up to you. With that in mind, financial spring cleaning can include an assessment of how you use your cards. You can actually take advantage of your credit cards. There are people who use their cards to help them budget better and even get perks and rewards.
One of the benefits of using your credit cards are the rewards you get depending on the type of card and what your lender gives you. There are times when you can maximize your credit card rewards when used for specific expenses. This is also a good way to keep track of your expenses when you use your cards for specific expenses. Good credit card use can also have a positive effect on your credit score as shared by Investopedia.
Make your money work for you
Financial spring cleaning includes checking your accounts also to make sure you are making the most out of your money. It might be in a simple savings account lying dormant for so long. There are advantages to this strategy such as quick access to the funds whenever you need it. Just like what happened with the health crisis when people needed to dip into their emergency fund quickly.
But if you plan to keep your money in the account for an extended period of time, it is a good idea to consider a high yield savings account. This helps you earn a higher interest when compared to a regular savings account. If you are planning to keep the money saved longer, it might be better to invest that amount. This will give you the chance to get a higher return over a long period of time.
Make contingencies for unforeseen challenges in the future
The pandemic underscored the importance of being ready to face unexpected financial challenges anytime they come up. This is why it is crucial that you include preparations for an emergency fund when reviewing your finances at any given time. If you have already started with one, you can review and check if you are on schedule. If not, now is the best time to get started.
Financial spring cleaning is a good way to realign and get back on track with your finances for the year. It can help you reach your goals and stay protected in case another crisis comes.