Warm weather motivates many of us to tackle long-overdue projects. Yard work or a new fitness routine might top your list, but as we head into spring, there’s one more thing that requires annual cleaning: your finances. Financial planning is not a one-and-done task because life is always changing. We encourage you to ‘spring clean’ your finances every year to be sure the way you spend your money aligns with your lifestyle and long-term priorities.
Clean up these five things at least once a year:
Your household budget. If you don’t have a household budget, start by creating a simple Excel spreadsheet to track your monthly income and expenses. Once your budget is created, however, it will likely need regular updates to account for salary raises, bonuses or new expenses. Significant life changes like getting married or having a baby will drastically impact your budget and should prompt a review even sooner. Even if your circumstances haven’t changed, tax laws or other things outside of your control could have. So, you might need to adjust your withholdings to avoid an unexpected expense when tax returns are filed.
Your savings contributions. We typically recommend clients save 20 percent of their income but 10 percent at a minimum. Take a look at the various places you save, including contributions to your IRA, bank savings accounts, etc., and combine those monthly inputs to calculate your total savings. As you do this, you might uncover old accounts that can be closed or consolidated for more efficient financial management.
Your automatic renewals and withdrawals. Putting bills and memberships on auto-pay is a great convenience, but not having to deal with them monthly has its downsides. When expenses are automatically withdrawn from your account, it’s easy to lose touch with how much things cost. For each expense on auto-withdrawal, review a 12-month history of what you’ve spent, calculate the average per month, and ensure it matches what you’ve budgeted. Be sure also to audit memberships that auto-renew – like streaming services and gym memberships. Out-of-sight, out-of-mind expenses can eat into your discretionary income quickly, so if you aren’t using them regularly, you’re basically just making a ‘donation’ to for-profit organizations.
Your insurance policies. With the exception of life insurance, you should have insurance policies re-quoted regularly to explore possible discounts and ensure you have adequate (but not too much) coverage. Auto, home, and umbrella insurance policies have flexible rates, and reducing those monthly costs can provide some cushion in your budget.
Your beneficiaries and guardians. Although updates to your beneficiaries and guardians are unlikely every year, it’s wise to at least review them annually to confirm they reflect your wishes today. You’d be surprised how many people still list their parents as beneficiaries because they simply forgot to make updates when they got married or how many people still list an ex-spouse after a divorce. Put this item on your post-baby to-do list, too, or any time your marital status changes. Legal guardians for your children and beneficiaries of your will, trust, retirement accounts, or life insurance policies should always be up to date.
Annual spring cleaning is also a time to discuss with your family what needs to be paid for in the coming year. Are there home renovations you want to make, required vehicle maintenance or fun trips on the horizon? Plan ahead for these one-time, special expenses, so you don’t have to dip into savings to make them happen.
Blog by Michael Snyder, Certified Public Accountant.