5 Ways to Spring Clean Your Finances
Much like the start of a new year, spring provides us with an opportunity to take stock of where we are and breathe new life into areas that need attention.
Whether that’s the old tradition of cleaning out the garage or the newer one of revisiting resolutions, spring is the perfect time to re-evaluate your financial goals.
As with any refresh, spring cleaning your financial life should feel doable and energizing, so we’ve rounded up 5 realistic ways to dust off your finances and set yourself up for success – now and throughout the year.
1. Create a realistic budget
Does it ever feel like groundhog day when you set and review your budget? That might be because you’re not creating a realistic one for your needs. If you’re new to making a budget you can stick to, try a simple framework that financial experts recommend: the 50/30/20 rule.
- Allow up to 50% of your income for needs.
- Leave 30% of your income for wants.
- Commit 20% of your income to savings and debt repayment.
- Rinse and repeat each month.
2. Commit to short- and long-term savings goals
Chances are you’ve been saving for years, but are you allocating your funds in the most optimal way? Experts recommend committing to creating clear short-term goals (i.e. travel expenses) and long-term goals (i.e. wedding, home, or kids’ expenses), and make your money work smarter. Keep savings for short term expenses in an easy-to-access savings account. For those longer-term goals, think about utilizing a high-yield savings account or a CD (certificate of deposit), both of which offer APYs well above the national average of a traditional savings account.
3. Create a plan to pay down debt
Everyone’s financial picture is different, hence the term “personal finance.” At the end of the day, choosing a plan that actually works for you is the best plan. 2 methods that have been popularized by financial experts are the “avalanche” and “snowball” methods.
Your most expensive loan is the one with the highest interest rate. If you pay that off first, you’ll reduce the overall amount of interest you pay and decrease your overall debt. Starting with this loan is called the avalanche method, and it allows you to pay down debts in order of highest to lowest interest rates to save on your overall cost.
With the snowball method, you start by paying off your smallest balance first and then rolling that same payment toward the next smallest balance as you work your way up toward the largest.
At the end of the day, the best method is going to be the one that you can stick with.
4. Start investing in yourself
Retirement may feel like years away, but as the saying goes, the days are long but the years are short. Experts recommend making sure you’re taking full advantage of the benefits of a retirement plan while you can. If you haven’t started investing into a 401K, the first thing you might want to know is how much to invest. The rule of thumb is to put in at least as much as your employer match so you don’t leave any money on the table, then move up from there as needed to reach your goals.
5. Plan for the future
It’s always a good idea to plan for the future, but it can be hard to do when life is unpredictable. If you have someone counting on you financially, like your spouse, your parents, or your kids, make sure you’ve set up a safety net for them. A term life insurance policy can do just that — and you can calculate your needs at Ladder for free.