When it comes to spring cleaning, the hardest part is to get started…but with a plan in place your financial closet refresher will get you on your way to a stimulating rest of the year. Your spring cleaning financial plan can be as simple as these three steps:
1. Reevaluate your budget.
I compare a budget to a pair of jeans that just simply don’t fit anymore. Sometimes you have to be honest with yourself and either give them away or finally start exercising but staring at them in your closet often times does not change the needle. Whether you are in the accumulation phase, the stage prior to retirement or in the withdrawal phase living the fruits of your labor; keeping an honest budget will help you reach your goals, but you have to keep it honest and simple.
My grandma used the rule of thirds when it comes to budgeting: 1/3 for the roof over your head, 1/3 for wants and 1/3 for savings. It worked back then but let’s face it, we have a lot more things going than a house, a new outfit and a savings account. So here’s the idea of the grandma of the future: Senator Elizabeth Warren proposes a new rule which I have implemented into my own life for over 2 years and I have to say, I have been able to successfully stay on track. So skinny jeans here I come!
In the book All Your Worth, Warren lays out a plan for your budget using after-tax income as follows:
- 50% or less for needs: This includes mortgage or rent payments, insurance, transportation and any fixed expenses you cannot do without.
- 30% or less for wants: This may include anything from paying for cable to doing your nails once a week or going out for dinner.
- The last piece (although the smallest) has the important keyword “more” – 20% or more for savings and debt: This includes the emergency fund, the extra payment to your mortgage or student loan and retirement saving.
This less restrictive approach works well for all stages of life but especially for those who hear the word budget and replace it with restriction.
2. Evaluate your measurements by checking your credit report & score.
Pulling your credit report is simple and only takes a few minutes. This will give you a better understanding of where you are at and what you can improve on. The score used by lenders is your FICO. The FICO credit score is created out of an average of the 3 credit agencies: Experian, Transunion and Equifax. It displays your length and type of credit, debt to credit ratio and some personal information which identifies you. You can check your score up to three times per year by visiting one of the agencies websites listed above per quarter.
3. Remove all unwanted items.
Getting rid of paper clutter will be revitalizing enough, so start shredding! Many companies have shredding events this time of year where you can safely dispose of your personal and confidential information. Here at our firm, we are hosting a Shred Day on Saturday, April 18th (right after of tax season).
Get your budget on check, review your credit report and score and clean out the old cobwebs. It’s Spring – a time to love everything including your finances!
Investment advisory services offered through CWM, LLC, a Registered Investment Advisor.