Is It Time to Spring Clean Your Finances?

The clocks have changed, flowers are blooming, lambs are skipping, and the mercury is rising; all signs that spring is in the air.  Tradition tells us that this is the time to have a good clean-up and clear out of your house, but what about dusting off the proverbial cobwebs from your finances?

Setting aside some time for a monetary makeover could lead you to more financial freedom, and who doesn’t want that?!

Where to begin….

Start by taking a look at where your cash comes from.  This could be from wages, salary, self-employment income, interest or dividend payments, government assistance, rental property income, etc.  As well as noting how much income you receive, make note of the frequency with which you receive it.  Is your income consistent in amount and frequency or does it fluctuate?

It’s a good idea to take these figures over the course of a year so you can see any patterns or seasonal fluctuations.  You might find that your income drops over the Christmas and summer period, but your spending goes up.  This is okay, so long as you have a financial plan in place for this.

Next, you’re going to take a good hard look at ALL of your outgoings.  Go through your credit cards and bank statements item by item.  You could categorize them into sections that relate to your situation such as, living costs, necessities, nice-to-have, social time, kids, frivolous items, savings or retirement plans, etc.  This will be the most time-consuming, and possibly the most painful, but remember the end goal…. financial freedom.

Once you have all these figures laid out in one place, now it’s time to ask yourself these questions:

• • Are you spending more than you are earning each month?
  • Have you spent most of your pay within the first few days of receiving it?
  • How much of your income goes towards paying off debt?
  • Are you setting aside enough for savings or retirement?

When you can see all your expenses laid out in front of you, it can be a real shock to understand where your hard-earned cash actually goes.  You might discover a subscription payment that you had forgotten about and no longer use, or realise you pay as much interest on your credit card debt as you do on ‘nice-to-have’ items.

Just a few small changes to your spending can equate to long-term benefits and ultimately reaching your financial goals.

Important takeaways…and we don’t mean the yummy kind

• • You must be spending less than you earn! One or two months ‘budget blow-out’ is forgivable and manageable, but long term it’s not sustainable.  Your expenses need to come down or your income needs to go up, and let’s face it, the latter is not that easy.  To help bring your expenses down maybe that means forgoing that coffee each morning, canceling the gym membership that you rarely use, or shopping around for a cheaper service provider.
  • Stop paying interest on your debt as soon as possible! If you don’t, your debt could become out of control.  Look to see if you can consolidate your debt into a personal loan at a lower interest rate or transfer your credit card debt to a card that offers an introductory 0% interest rate.  If you consolidate your debt, it will also mean you’ll be down to one or two payments a month, which will be a lot easier to manage in the long run.
  • If you have a mortgage, review it. Interest rates have been at an all-time low this past year, and while they are on the rise, they might still be lower than what you are currently paying.  Just make sure you are aware of any fees that might be associated with changing your mortgage.
  • Save for your future. It doesn’t have to be a lot, and it doesn’t have to be a specific retirement plan, although we are advocates of those, but having a savings account that you deposit a little into each week, you’ll be surprised how much builds up over time.  You could be saving for a big-ticket item like a new car, or to help ease the expensive Christmas period, or maybe you just want to have an ‘emergency fund’ for when those unexpected things crop up.  If you do decide to open a new saving account there are varying bonuses offered by the banks, so make sure you shop around.

The above advice has been written for individuals, but the same basic principles apply if you are a business owner.  We know what a daunting task sorting out finances can be, so if you need help getting started, Accountants Plus are just a phone call or email away.