Why aren’t we as diligent about cleaning up our financial situations as we are cleaning our own living spaces? Your finances are an equally important area of your life, and yet many of us refuse to regularly ensure they’re in check. Luckily, the financial to-do list you should make a yearly habit of going through should take less than a few hours of your time. Following are the most important things on which to zero in:
1. Check Your Credit Report
Did you know you're entitled to one free copy of your credit report every 12 months from each of the three nationwide credit reporting companies? You can order online from annualcreditreport.com, the only authorized website for free credit reports, or call 1-877-322-8228. You will need to provide your name, address, social security number, and date of birth to verify your identity.
While it may seem tedious to analyze every line of your credit report each year, you’ll definitely thank yourself should you find any inaccuracies that could be negatively affecting your credit score. A low score can definitely hinder you from receiving a good interest rate on a car loan or mortgage you might need down the road, or it could prevent you from securing a loan altogether.
Reviewing your report could also help you recognize a possible identity theft in progress. Red flags include accounts being opened in your name that you had nothing to do with. If you discover something suspicious or inaccurate, contact the reporting agency in writing in order to get it corrected.
2. Get your paperwork in order
Do you have a tendency of letting important financial paperwork get lost in the shuffle of your other mail? If this sounds like you, the first step may be to simply opt out of receiving mailed copies of your bank statements. You can usually accomplish this in a few seconds online. For the rest of your mail, make a habit of opening it immediately instead of letting it sit around unopened for days or even weeks. To stay more organized, you may consider creating a file system for your mail and placing any important items that pertain to taxes or other important financial matters you need to hold on to in separate folders as soon as you receive them. For mail that needs immediate attention each week, keep it in a tray on a desk or table where you’ll see it.
3. Analyze your subscriptions and other monthly payments
There are plenty of offers for subscriptions out there, such as music and movie streaming that are enticing you to indulge for a small price per month. While some may seem like a minor investment–$10 a month or $50 a year—when you add them all up, those subscriptions could be making a major impact on your finances, even hurting your ability to save as much as you could. That’s why it’s important to do a quick analysis once a year and make sure you’re actually using and benefiting from the subscriptions you’re paying for each month.
It’s also a good idea to check into the rates you’re paying for auto insurance, cable, internet, and even your cell phone bill, as they can vary greatly from year to year. If your rate has recently increased, call the company and try to negotiate a better price. Oftentimes they will offer you a better deal if they fear you may take your business elsewhere. If they refuse to budge, however, perhaps it’s time to shop around and make a switch in order to save some money.
4. Readjust your budget
Its difficult—sometimes nearly impossible–to reach financial goals without writing them down and regularly readjusting them. A budget is an essential component of this process. Writing down goals of what you’d like to spend in each category of your monthly expenses, such as groceries, clothing, etc. is the first step. The second is to evaluate whether or not you’re actually reaching your goals each month.
To clean up and readjust your budget, look at the last two or three months pulling of bank statements. Do some quick calculations and analyze which spending categories are in line with your monthly budget and which are drastically off the mark. Looking at a few months at a time is a good way to see what your spending patterns tend to be. Then, you can readjust your goals, but make sure you’re realistic, or you’ll just get frustrated. I recommend trimming categories in which you tend to overspend by about $50 per month at first, so you’ll be more likely to succeed. Using cash only for such categories is also an excellent way to stay on track.
Part of readjusting your budget is also figuring out if you’re saving enough in your emergency account. Start out with saving 5% of your salary each month, and gradually increase that amount each year, especially if you get a raise or inheritance that increases your monthly budget.
The bottom line: Spring cleaning your budget is just as important (if not more) than cleaning your living space. Don’t waste time checking into each of the above areas to see if your habits are in line with your goals, and readjust as needed.