by Jean Chatzky
For much of the country, spring came early this year. I’m one of those people who uses the season as an impetus to get my act together — though I have to admit I’ve been afraid to swap out the cold-weather clothes for lighter gear, lest I jinx the wonderful warmth. As an alternative, I thought I’d start by spring cleaning my finances. Here’s how to do it, step-by-step.
It was a long winter. Bills got thrown in piles, pay stubs are in a drawer at the office, your tax paperwork is still strewn across your desk. Start by collecting everything so it’s all in one place. Throw it all on the dining room table if it makes you happy. Then walk away. Why? Because that’s step one, and this task is often too overwhelming to tackle all at once.
“You’re going to spend several sessions on this, so break it up into a few steps,” says Julie Morgenstern, author of Organizing from the Inside Out. “First, you collect from every nook and cranny — the bottom of every handbag — and bring it all together. Then you sit down and categorize the papers.” It helps if you design a system for each category. Mine is simple: If it’s bank or bill related, it lives online and I can shred the paper copy. If it’s a tax record, legal document or warranty, it goes in a file.
When I clean my kitchen, I tackle the fridge and get rid of anything questionable. Pulling out a tomato from last month isn’t my favorite job, but the financial equivalent is more fun because it puts money in your pocket. So, dump the rotten tomatoes from your budget. Are you still watching HBO, or did your favorite show end in the fall? If it did, cancel until next season. Ditto for the gym — most will let you put your membership on hold, and it’s prime season to run outside. How about bundling your auto and homeowners insurance? Are you using all of your cell phone minutes, or could you downsize to a cheaper plan? If you perform this exercise correctly, you could save $50 a month — likely more.
Shine up your credit as well as your countertops. You’re entitled to three free copies of your credit report a year, one from each major credit bureau, and I recommend spreading them out every four months (April just happens to be the fourth month of the year). The report will show you where you stand and tell you what you need to do to give your report a good scrubbing. One quick action: Pay down high-interest-rate debt, which is costing you money and, depending on your credit limit, could be costing you valuable credit score points. Aim to keep your utilization ratio — the amount of credit you’re using compared to the amount you have available — under 10%.
Okay, this is a bit of a stretch, but I’m going to go for it anyway. I want you to sweep any extra cash you have into savings. Continue the trend throughout the year. It’s a great time to start this habit, for two reasons: One, you have until April 17 to make a contribution to an IRA for last year. And second, you may have a tax refund burning a hole in your pocket. Dump it into a savings account before you’re tempted to blow it on those golf clubs you’ve been eyeing but know you’ll hardly have time to use. Then ask your employer to adjust your withholding, so you get that cash each month, rather than in one big chunk next spring.