5 Weeks, 5 Projects to Spring Clean your Finances
Yes, here we are. It’s already March and 2021 is off and running. Many of us may have set goals this year to really get our personal finances in better shape. If you are feeling like the first quarter has gotten away from you and maybe a little disappointed you haven’t made time to tackle your finances, you are not alone. But, it’s not too late to start this year off on the right financial footing. Because March is a longer month, it’s the perfect time to accomplish 5 simple projects guaranteed to get your money house in order. If you complete one project per week, you will emerge this spring feeling organized and accomplished. Here are the 5 projects in order of priority:
Project #1: Pull your credit report and FICO score.
Get your free credit report at www.annualcreditreport.com. Read through it and make sure you recognize all the accounts and the information is accurate. If there are items of concern or accounts that need to be corrected, contact the creditor directly. Ask them to fix the discrepancy and report to the three major credit bureaus (Experian, TransUnion, Equifax). Get everything in writing. There are some credit experts who suggest keeping all credit accounts/lines open to show longevity in credit history and keep your overall credit utilization low. I tend to disagree slightly and think you should only keep the accounts you actively use. Keeping track of many lines of credit and multiple accounts is too cumbersome and it can open you up to potential fraud. Regarding your credit score, many credit card companies now offer free FICO score reporting. If your score is 700+, this is considered to be good credit. If you score 800+ this is excellent credit. The best way to improve your score is to use credit regularly, pay credit cards off in full every month and on-time. You shouldn’t have to pay anyone to repair or monitor your credit. Here’s a helpful article from Experian, one of the main credit reporting agencies: https://www.experian.com/blogs/ask-experian/credit-education/improving-credit/credit-repair/
Project #2: Create your net worth statement.
A net worth statement is a snapshot of your current financial life and is a helpful tool for setting goals and tracking your success. Your net worth is the difference between your assets (what you own) minus your liabilities (what you owe). It’s as simple as listing out all your assets and their current value along with all your liabilities or debt and the balance owed. The goal is to grow assets while paying off liabilities to increase your net worth. Having it all on one page and easily accessible will help you to understand where you stand today and what you need to do to improve your financial life going forward. Once you have it compiled, it’s easy to review it once a year, make updates, and set specific goals for the future. Knowledge is power. Here’s a link to a Microsoft Excel spreadsheet template: https://templates.office.com/en-us/net-worth-calculator-tm01018308
Project 3: Make or update your spending plan.
If you have a financial goal, like buying a car or paying off a credit card, and no idea how you are going to accomplish that, a spending plan or budget is your roadmap to success. Also, if you are in the dark about where your money goes on a monthly basis, this spending plan will help you gain control. We all feel better about our finances when our spending aligns with the things we truly value in life. So, if you really want that two-week tropical vacation this year, a spending plan is the surefire way to make it happen. Gather up at least 6 months of bank and credit card account statements (12 months if your income tends to fluctuate). Track all your income and divide by 6 for your average monthly income. Once you know your monthly income, now you want to compile your expenses. I recommend grouping expenses into three different categories: 1) Necessary expenses. 2) Discretionary spending. 3) Savings. Each category will have separate line items to track various expenses like rent/mortgage, utilities, groceries, streaming services, gym membership, etc. See if you can align your expenses to meet the recommended percentages of 50% in necessary, 30% in discretionary, and 20% going to savings (building assets). Even small improvements make a big difference long-term. The goal of this exercise is to net zero after subtracting expenses from income. How do you increase income? How do you cut expenses to grow savings? This is the project that will reveal the answers and your #1 tool for success. Here’s a link to free resources and templates from NerdWallet: https://www.nerdwallet.com/article/finance/free-budget-spreadsheets-templates
Project 4: Set up auto transfers.
After completing your spending plan project, the best way to set your plan into motion is to set up your automatic transfers. Are you paying that credit card down by adding $40 more to your minimum payment? Set it up as an automatic payment or transfer. Are you moving $100 into short-term savings to pay for your tropical vacation? Make it happen automatically on the same day every month. The “set it and forget it” approach to funding extra payments or transfers to savings is another trick that helps you reach your goals faster.
Project 5: Organize your files.
Since you have gathered up all your assets and updated your list of liabilities (debt) you have already started the laborious process of file organizing. You’re almost done! I recommend two separate files for your personal finances. Save your net worth statement, spending plan, and other data you will regularly update in your cloud server of choice. Additionally, it’s smart to have a simple estate plan hard file in a secure location. Let your significant other or responsible loved ones know where you have this file should something happen to you and they need to access it. This file should hold your written directives, insurance policies, details on monthly expenses/due dates and possibly banking password information. You could also print out copies of your net worth statement and spending plan for easy reference.
You did it. You completed one project per week and you now feel like a million bucks! Let me know how it goes. If you have any questions or need a little more detail, I’m here to support you. You can always book your FREE 15-minute Q&A session by clicking the link here. https://meetings.hubspot.com/kasey17