Spring cleaning is a popular task for most people with their homes because you can open up the windows and air things out again. But honestly it doesn't matter when you do spring cleaning of your home or your finances.
The more important thing is that you do it.
So why don't you also work on spring cleaning your finances this year at the same time? Or when you are done with (or maybe need a break from) doing all of the housecleaning you can also spring clean your finances?
While spring cleaning your finances may seem much easier than cleaning your house, most people don't like to spring clean their finances simply because of the thoughts, memories and even burdens that money and looking at your finances brings up.
But that is precisely why it needs to be done.
Money doesn't have to be an emotional trigger for you. Money doesn't have to cause all kinds of bad feelings for you. Money is simply a tool that is used to help you buy the things you need to live your life.
But we are humans and we like to complicate things, so our emotions get involved. (We'll dive more into our emotions around money another day, so make sure you come back for that post.)
So, put your feelings aside and let's spring clean your finances.
What you need:
- bank statements and credit card statements for the first three months of this year, and if you like to spend for the holiday season, make sure to grab December's statements as well.
- list of your investments
- list of your debts
- your journal, or just a few extra pieces of paper
- Excel or google sheets (or you can do this by hand with pen and paper, but spreadsheets make it much easier!)
I'm going to try to make this as easy and painless as possible. But most people that I work with, don't like to even look at their money, let alone keep track of it. So if you are someone who keeps track of your money on a regular basis, congratulations! I'm really proud of you! Keep up the good work. If you aren't, then there's no better time to start than right now.
So let's get to work!
Step One: Using your bank statements and credit card statements, read through them and notice where you are spending your money.
- Are there any expenses here that may be recurring payments and you don't think about them, and really don't even use them?
- Are there places that you spend money that you can cut back on?
- What expenses really stick out to you?
- What changes do you want to make with your money?
Step Two: Using Excel or Google Sheets (or your pen and paper), list out the categories of your spending (rent/mortgage, utilities, car payments, car expenses, food, eating out [yes make this a separate category], clothing/shoes, pets, medical, and anywhere else you spend money, I'm sure you get the picture now).
Then next to each category, total up how much you spent for the past 3 months. If you're like me, you'll put each month as a separate column. But it's okay to lump them altogether too.
Now notice how much you really do spend each month (or the past 3 months) on your lifestyle.
- What do you need to change?
- Are you making enough money to cover the essentials?
- Do you have any discretionary spending money left over at the end of the month?
- Can you find any extra discretionary spending money?
- What numbers, that are possible for you to change, really piss you off? What can you do to start changing them now?
- Are you putting money in savings?
- Are you making a dent in your debt?
Step Three: Take an inventory of your debt.
Debt is something that gets many of us down. But at one point in your life, you used the money available from your debt to help you buy something right now that you needed (or maybe wanted). The money was available to you then and now you are paying regular payments for the use of that money.
Don't discount or bad mouth or talk bad about your debt. It helped you at one point in your life and you should be grateful for what that money has done for you. Now you need to do everything in your power to make extra payments to help you eliminate this debt so that you can be even more grateful for no longer having to pay it.
When you take inventory of your debt, you want to make a list of every creditor that you owe money to and how much you owe. It may also help to add in the minimum payment and due date of your debt as well. I like to keep this list in Excel and then every month I watch the balance decrease on my debt. Seeing that balance decrease helps me be even more grateful.
This step is usually one of the hardest steps there is when it comes to facing your money. Most people have a rough estimate of what their debt owed is in their head. So they don't want to put it all in one place to really admit how much money they owe.
If you owe money, you aren't alone. Student loans in the USA total over $1 trillion dollars. And credit card debt in the USA is in the billions. A lot of people owe money and some people owe a lot more than others. But the only thing you can do, is work to eliminate your own debt and face the real truth of how much you owe.
Step Four: Take inventory of all of your assets and investments.
Most of the time, but not always, the people who have debt, have very little, if any, in the form of assets and investments. But don't worry, you'll still be able to accumulate your assets and investments without missing out too much.
When it comes to taking inventory of your assets and investments, make a list of the name of the asset or investment and how much it is worth. Again, the best place is Excel or Google Sheets, but paper works just fine too.
Step Five: Take inventory of all of your cash in the bank and/or cash in hand.
What is the balance of each of your bank accounts? How much cash do you have in your wallet? If you already did this with step 4, you are golden. But if not, total it all up now.
Step Six: Calculate your Net Worth
Your net worth is the total of your assets and investments and cash less any debt that you owe.
I like to track this number on a yearly basis. I know many people that like to track their net worth on a monthly basis. For me, I track it yearly, because I like seeing big changes occur. On a monthly basis, you can still see changes occur, but they don't change as significantly and that can get you down sometimes.
But the time frame with which you track your net worth is completely up to you.
Get a net worth calculator in Google Sheets right here.
Step Seven: Create a budget.
Budgets are regularly talked about in the personal finance world. But I rarely hear about them anywhere else. And they do end up being very important.
I personally didn't used to use a budget. You see, I'm good at math and always did the math in my head. But then, I'd get to the end of the month and always have one or two bills left to pay and no money to pay them. I'd spend my money on things that I really didn't need, but just wanted in the moment (again emotional money here!).
So I started using a budget. There are tons of apps out that help you with your budget. You can use Excel. You can use pen and paper. I'm personally trying something new by using Airtable, which is kinda like using Excel, but I've been using Excel for years.
And now that I budget regularly, I know where my money is going and I know when I may have a little extra money to buy something that I want. If I don't have the extra money in my budget, then that thing I want really doesn't need to have a place in my home.
Step Eight: Go through all of your financial documents, whether they are printed or electronic.
Many people keep their financial documents printed on paper and filed in a filing cabinet. Most things you can toss after a year. But you can also toss documents that no longer pertain you, like closed or paid off loans or credit cards.
Go through your files of paper and shred anything that is really old and you no longer need a copy of or no longer pertains you. Get rid of the extra clutter that you have and make room for all of your files on your assets and investments.
Step Nine: Finally, get out your journal and write out how this spring cleaning your finances has worked for you.
I love reflections about money and they really seem to help us to dig into our emotions around money too.
- What did you learn about yourself?
- What did you learn about your money?
- Are you really happy with where your money and net worth stands right now?
- What do you need to change to be happier?
- How can you start making those changes now?
- What aspects of your money actually need to change now that you know what you have, what you owe and how you spend your money?
Money is not an easy topic to discuss and look at for most people. They consider it a necessary evil that they have in their life. And again, this is where money has become an emotional topic (which we'll be discussing on another day).
But when you do things like spring cleaning your finances, tracking your spending, keeping track of your debt, tracking your net worth, money becomes less about the emotions that we attach to it and more about what money can do for you. It becomes more about how you can make the most of the financial opportunities that are available to you.
I'd love to know if this guide to help you spring clean your finances has helped you. What was the most eye opening experience you found while spring cleaning your finances?
Save this guide to help you anytime you want to spring clean your finances.