Spring is just around the corner (although for many of us, it couldn’t come soon enough). As the buzzing of the bees, birds, crispness of the breeze, flowers and freshly clipped trees, signal the start of a new season, chances are your house and your finances have seen better days.
When most people think of spring cleaning, they attribute it solely to cleaning their home, but it’s also as good a time as any, to get your financial house in order.
Organizing your finances
Before you can begin to tackle any big financial moves, like paying off debt, you need to know where you’re starting from. Do you really know how much debt you’re in, for example? Or how much money you have aside in savings?
Gather all your documents. It’s important to gather and keep all your documents in one place, whether that be your trusty filing cabinet or on your computer. So you’re not racing around trying to find the latest bill, receipt, invoice or tax returns.
Sort it out. Group all your documents in a way that make sense to you. My filing cabinet looks something like this:
- Credit card bills (with separate folders for each)
- Home (includes all my house-related expenses such as mortgage, maintenance, etc.)
- Insurance (separated by whatever type of coverage you have: health, company group plans, home, auto, life, disability, etc.)
- Investments (retirement accounts / RRSPs, child education funds / RESPs, and any group and personal investment accounts),
- Other Liabilities (all outstanding loans, other than your mortgage and credit cards – lines of credit, student loans, etc.),
- Savings (TFSAs, GICs, or any other savings accounts),
- Tax returns, and
- Warranties (for large purchases)
Self-employed? Try this: My wife is self-employed too and we implemented this method a few years ago and it’s helped her business and us out tremendously, especially during quarterly or annual tax time. We use a 3-ring binder with plastic sleeves and tabs to separate each quarter. So when there’s any bill that comes in that’s related to her business in any way, or can be claimed as a deductible expense, it’s shuffled into those sleeves. As organizing business expenses by their tax deduction can get quite complicated, originally, we used the inside binder pocket to hold all our bills and receipts until each one was manually entered in our system – and then once it was all entered, it went straight into those sleeves. But even now, as we hand off our binder to an accountant, we put them directly in their sleeves. Which not only makes his job a whole lot easier, but we know now, when one of the sleeves is empty, we can easily tell which receipt was taken out and not put back. It keeps us organized.
Implementing a system
Now’s the time to go through the piles you’ve made and throw out what you don’t need, categorize them in a way that works best for you and print out what’s missing or look at other ways to minimize all the paperwork.
Automating bill payments. Early on, when we first bought our home, I missed a couple of payments. It’s inevitable. Or is it? By changing the majority of my payments to automatic/pre-authorized billing, I’ve never been late for another bill. I’ve switched just about everything to automatic billing, aside from credit card billing, which some months can fluctuate quite a bit. Just avoid using automatic billing (or credit for that matter) for smaller service contracts such as house cleaning, lawn maintenance, etc. as some of the smaller companies make it much more difficult to cancel a contract. Make it cash or cheque.
Paying your bills as soon as you get them. If you choose not to automate your billing, or for any other type of tax or credit bill, pay your bills as soon as you get them. Chances are, if you leave them till the payment due date, you’re going to forget.
Consolidating accounts. Are you paying bank fees on accounts you rarely use? Now might be a good time to take a good look at all your accounts and see if you can combine any or cash out and shut down the ones you’re not using. Keep it simple.
Track your spending
Most people don’t even know how much money they actually bring in. The only way to ensure you’re not spending more money than you’re taking in, is to create a budget to track what your spending. They don’t have to be complicated. In fact, it’s better that it be simple, flexible and that you make some room to budget in the fun stuff, to reward yourself for sticking to it.
Set financial goals
Where do you want be a year from now, 5 years from now and beyond? Debt-free? Retired? Or maybe it’s a much-needed vacation next year. Whatever you have your heart set on, your budget is the roadmap to get you there. And depending on what goals you set, you may need to massage your budget, to get it realigned to your new program.
Prioritize your goals. Once you have a list of all your short- and long-term goals, take the time to think about what areas are most important to you. If that vacation means it’ll take one year longer to pay off your debt, is it worth it? Maybe it is, but it’s something you need to evaluate.
Dig deeper. Okay so you want to pay off debt. But where do you start? There are many different strategies to pay off debt, find one that works best for you. Have a vacation in mind? Lay out all the costs involved. Your vacation costs don’t end at the flight and hotel, think about any new clothes, spending money, travel gear, sun gear, travel insurance, etc.
Spring your goals into action
Find your hidden savings. Assess your situation. Is there anything you could reduce or eliminate, that could get you one step closer to reaching your goals? Check out my post Ways to uncover your hidden money for an assortment of ideas. Or do you have any talents that you could be using to earn extra money?
Automate your savings. Once you’ve set your goals, it’s easy to forget to put aside money in your savings or investment accounts, if you have to think about it each time. If you haven’t already, most online banks now allow you to open multiple savings accounts that you can target to specific goals and automate your finances.
Don’t let the groundhog dictate how many more weeks of winter you have left. Set a game plan in place and start spring cleaning your finances today!