By Chaz Fahrner, CFP®, EA, MSBA
Spring is a time of new beginnings, colorful flowers, longer days and the annual deep cleaning of forgotten corners in your home. Since you are stuck at home and I am guessing every inch of your “shelter” is sanitized by now, why not take this opportunity to clean up your finances, too. Start Spring with more than a clean house, start with clean debt, dust-free monthly subscriptions, less paper and less accounts to keep track of. Follow these 4 tips to help tackle the financial grime and feel the financial cleanliness.
- Mop up Your Debt and Pour it Down the Drain
Debt can be the biggest source of stress in our lives and cause the most struggles to future financial well-being. The reason paying off debt can be so powerful is because it may allow you to focus those saved dollars on investing where you are earning interest instead of paying interest, which can start the process of compounding interest. Debt is often necessary if you are taking out student loans or you are buying a home. However, if you carry a high interest credit card balance from month to month or take out high interest loans, debt can cripple you. There are a few ways to approach paying off debt, but my favorite is to stack your debts from smallest to largest and tackle the smallest debt first. This will give you some wins with the smaller debts and motivate you to continue the process of getting everything paid off.
- Dust off Those Unused Monthly Subscriptions
About 10 years ago, I made the decision to stop my expensive cable subscription and start using an inexpensive online service. I saved about 90% of what I was spending and never looked back. Today’s business trend is to peg customers to a monthly subscription whether they use the service or not. On many occasions, I have helped clients with their spending and while doing so, discovered clients paying for subscriptions that were forgotten. The best way to identify these unused subscriptions is to look at the details of your credit card or debit card statements to make sure every charge is accurate. Investigate anything that does not look familiar. You may be paying too much or not using some subscriptions and services listed on your statements. Examples to look at may include fitness gyms, Netflix, Amazon, Costco, credit monitoring services, Dollar shave club, Blue Apron, newspapers, magazines and so on.
- Vacuum up Your Financial Paper Statements and Go Paperless
If you receive financial paper statements, spring time can be a great time to clean them up and get them off your desk. Always shred anything with personal information to protect your privacy. Consider signing up for paperless statements. Going paperless on all financial statements is a great way to reduce clutter and confusion. These statements are sent to your email address versus your physical address. This helps you reduce your mail load, ease environmental impact, help protect you from identity theft and potentially save on the fees some companies charge for paper statements. Most financial institutions have paperless options and this can be accomplished by updating your profile online or calling in to request the change.
- Bag up and Toss Those Accounts by Consolidating
This spring is a great time to freshen up your financial accounts and consolidate where you can. The typical baby boomer has worked 12 jobs over the course of his or her career which translates to potentially 12 different retirement accounts. The average American carries 5 credit cards and half of all Americans use multiple banking institutions for checking and savings. The goal is to combine identical types of accounts and hold them in as few places as possible. Once this is completed, you will likely reduce your stress because you will have clarity and know what you own, where it is located and how it’s invested. There are other benefits to consolidating investment accounts: easier account monitoring, one investment approach with complete oversight, and simplification when your required minimum distributions start for retirement accounts.
The joy of finding loose change in your couch cushion is a rewarding byproduct of spring cleaning your home, but the payoff from your financial spring clean may be much more lucrative. You can save on interest by paying off debt and potentially gain money from cancelling unused subscriptions and services. You can potentially gain piece of mind by shredding old financial documents in order to protect your financial and personal information. You could gain transparency and oversight by going paperless and consolidating accounts. Not only will you have a clean house, but if you follow these tips, you’ll have a fresh, clean way to save and keep an eye on your money!