As the itch to shake off the winter doldrums sets in, you’re likely ready to jump head first into spring cleaning. But, while you are busy purging closets and cleaning out drawers this spring, it’s important to remember your finances may need a little sprucing as well.
With the tax filing deadline past us, this is the perfect opportunity to reevaluate your financial plan to make sure you’re on the right path to meet your money goals.
Here are six ways you can do some quick financial spring cleaning.
Do a cash diet for one month.
One of the best ways to give your finances a little cleanup is to do a cash diet, which ultimately is an audit of your spending habits. The premise is simple: you can only use cash to make purchases all month.
I realize since we live in a technology-focused world, you won’t be paying rent/mortgage, utilities, cell phone bill or student loan payments in cash. But, once you pay off those bills, the remaining purchases, such as food, entertainment, new clothes or anything else, should be paid exclusively in cash.
A helpful tactic to operate this way is to take the average amount you spend each month outside of your main bills and divide it by four. For example, $800/4 = $200 per week. That amount is what you have to spend every week. Now, take a trip to the ATM and withdraw the money from your account so you have it when you need it.
It’s easy to know exactly how much you have left to spend for the week by opening your wallet and counting what’s still there. Once it’s gone, it’s gone. Any remaining amount can be rolled over to the next week or put towards other savings goals.
The point of doing a cash diet is to focus on how you spend money. It’s the perfect way to show what you actually spend money on versus how you think you spend money. Mindless spending will quickly be apparent, which will help you curb routine indulgences that should be modified or nixed altogether.
Make charitable giving part of your monthly budget.
Giving to a charitable organization with a 501(c)(3), tax-exempt status is a great way to do good in the world plus help yourself by reducing your tax liability. But instead of waiting until the end of the year to make a lump-sum donation, consider making charitable giving part of your monthly budget. Find multiple charities to support and designate a specific amount of money toward that cause every few weeks.
Just don’t forget to track your donations so you can use them as a deduction come tax season!
Create a debt repayment plan.
Having the goal to pay off debt aggressively is admirable, but it is more successful if you have a specific strategy.
Consider implementing the debt avalanche or debt snowball method, concepts brought to life by American businessman Dave Ramsey. The debt avalanche focuses on paying your debts down from largest interest rate to smallest, regardless of debt size. The debt snowball instructs you to pay your smallest debt first and work your way up.
No matter which method you choose, it’s important to know exactly how much you’re putting towards debt each month. Also, make sure it’s more than the minimum due.
Max out your 2020 and 2021 IRA.
There’s still time to tax advantage of maxing out your IRA for 2021 if you haven’t filed your taxes yet.
Contributing the max IRA contribution of $6,000 will set you up for retirement and provide a nice deduction. Plus, you can use your tax refund to start maxing out your 2021 IRA contribution.
Increase your 401(k) contribution by 1 percent.
Log into your 401(k) portal and up your monthly contribution by just one percent. That extra percent shouldn’t have a huge impact on your monthly budget and will help build your retirement savings quicker.
If you’re really motivated to boost your retirement funds, consider increasing your contribution by more than 1 percent. However, only do so if it aligns with your other financial goals.
Declutter your home for profit or a tax deduction
Spring cleaning around the house can actually help your finances in more ways than one.
Once you collect unwanted bags of clothing, books and household goods, try to make a profit by selling the items. Start by posting the items on Craigslist, Tradesy, Ebay, ThredUp. You can also try a good old-fashioned yard sale.
After you’ve exhausted your ability to make a profit and made some extra money, you can donate the remaining items. Drop off your goods at a local, non-profit thrift store such as Goodwill or Salvation Army. To make it even easier, use the GiveBackBox program to re-use boxes to ship your items directly to Goodwill. But, make sure you collect a donation receipt in order to take a deduction on your tax return next year.