Spring has sprung and you’ve dug out the quarters between your couch cushions. But there are better and more efficient ways to free up some cash. Here are seven.
Spring has sprung and you’ve dug out the quarters between your couch cushions. But there are better and more efficient ways to free up some cash.
Here are seven tips on how to make sure your financial ship is in shape.
1. Clear the clutter.
Just as spring is a good time to clean out your closets, it’s also a good time to go through your finances and toss out the things that no longer fit your life, says Gary Foreman, editor of frugality-minded website The Dollar Stretcher.
Foreman and his family were using one of the inexpensive movie download services so much that they dropped one of their expensive cable subscriptions. “It was rare that we were watching it,” Foreman says.
His tip: “I go through the financial statements and look at them like they’re closets,” he says. Ask: What am I not really using anymore?
It’s not only expenses that need the Marie Kondo treatment. If the receipts and statements in your filing cabinet (or the shoebox in the closet) date back to the Reagan administration, it’s time to sort and shred.
Not sure how long to keep each document? Here’s a handy guide on what records to keep and how long to keep them.
But knowing what to keep is only half the battle. Assemble a simple, effective filing system, says Jonathan Kennedy Jr., president of Endeavor Capital, a Richmond, Virginia., financial planning firm.
“All you need is a three-hole punch and dividers. Have one binder for utilities, one for financial statements, one for credit cards and one for miscellaneous. Keep the previous six months of bills on hand and get rid of the rest.”
You’ll be left with a few neat notebooks on a shelf, rather than drawers full of papers and files.
Signing up for online statements and paying bills electronically might reduce the paper pileup but create electronic clutter.
“Going paperless is wonderful, providing users understand that an effective e-filing system needs to be as organized as a [traditional] filing cabinet,” says Regina Leeds, professional organizer and co-author of “One Year to an Organized Financial Life.”
“Moving all statements and receipts to a single folder on the desktop is just as bad as stuffing them in the file cabinet. Organization is essential.”
Be sure to back up all files stored electronically in case of a computer crash.
Don’t forget to safeguard important documents. Financial documents such as savings bonds, life insurance policies, deeds and property titles and stock certificates should be stored in a fireproof safe or a safe deposit box at the bank, Leeds said. Make an inventory and – just in case – formally authorize a trusted adviser or family member to get access to the material.
2. Plan (or recoup) big spending.
Warmer weather is here, so if you’re still shoveling those leftover Christmas or vacation bills, now is a good time to get rid of them, Foreman said.
One way to handle them is to strategize a one-time idea to make some extra money, such as a garage sale, online sale or even volunteering for overtime at work, he says.
If you’re good with self-control, your other option is to just put yourself on a more stringent payment plan. Use an online credit card calculator to see how quickly you can deep-six that debt. You’ll get peace of mind and a huge savings in the amount of interest that you won’t be paying every month.
Once you get ahead, stay ahead. Set back some money for those inevitable Christmas presents.
“Take some of the pressure off your end-of-year shopping sprees by saving the money earlier in the year,” says Taren Coleman, an investment adviser from Bethesda, Maryland.
Sock away $200 each month beginning in April, and you’ll have $1,800 by December.
Those savings could also go a long way toward your dream getaway.
“Now’s a good time to start thinking, \u2018What are you going to do for a vacation this year?’” Foreman says.
From “staycations” to weekend and long-weekend getaways, there are plenty of economical alternatives to the old standard 14-day sojourn.
A little advance planning can give you a financial advantage.
Open an account just for your big purchase, says Barbara Stanny, author of “Overcoming Underearning: A Five-Step Plan to a Richer Life,” who says a friend of hers is doing this to save for a dream purchase: a boat.
Even saving just a little at a time, “It’s amazing how fast it adds up,” she says.
3. Take advantage of technology.
Let technology do everything you know you won’t do yourself.
Set alerts to tell you when you’re approaching your preset limits on credit and debit cards, says Linda Sherry, director of national priorities for Consumer Action, a Washington, D.C.-based advocacy group.
Often you have the choice of setting them to reach you by email or text message, and they are “tremendously helpful,” she says. By avoiding going over your limits, you bypass having to pay extra fees.
You can also put your savings on autopilot. Set up an automatic draft to your savings account, “even if it’s just $10 a month,” says Stanny.
It’s as easy as going to your bank’s website and arranging to have the money automatically transferred every month from your checking account or payroll deposit, she says.
You don’t need fancy budgeting apps or credit management tools on your smartphone to make your financial life easier.
Forbes technology reporter Kym McNicholas loves her bank’s app: “I just downloaded Wells Fargo on my phone and paid off my credit card!”
Decide which websites are most beneficial and that you use the most, recommends financial planner Jane Nowak with Kring Financial Management in Atlanta. For those that don’t make the cut, remove all personal information and unsubscribe to them.
“In today’s digital world with so many ever-improving choices, less is more,” says Nowak.
4 . Scope out your credit score and report.
You’re entitled to at least three free copies each year – one from each of the three major credit reporting agencies – TransUnion, Experian and Equifax. Get them for free at AnnualCreditReport.com, the government-mandated site.
Review them thoroughly, checking closely for errors. Just one negative item not belonging to you – a past-due payment, collection or public record (judgments, tax liens, bankruptcies) – can land your score far lower than where it should be.
Dispute any errors you find and allow about 30 to 45 days for investigations to be completed.
After your first check, keep an eye on any change in reports through your credit score. Start checking your credit score monthly – either from one of the many credit cards providing free scores or through CreditCards.com.
Considering the major data breaches that put millions of consumers’ information at risk this year, your credit may need more heavy-duty protection.
Mark Zaifman, founder of Spiritus Financial Planning in Windsor, California, and contributor to the best-selling book, “Your Money or Your Life,” says give yourself the gift of peace of mind: Add a security freeze to your credit reports.
“Out with the old about worrying if someone will steal your identity and in with the new security freeze,” says Zaifman. “It’s by far one of the greatest consumer protections available in terms of preventing identity theft.”
5. Take stock of your spending habits.
You know those old household white elephants that have been around so long you don’t even see them anymore? Bad financial habits or outdated decisions are just like that. Lurking on the edge of your life, they take up space and resources without offering much in return.
But spring is a great time to examine your financial “big picture” and clear out what isn’t working for you.
Look at the reasons behind your current financial situation, says Foreman. For instance, do you need to be a two-car family? And are those family cars you bought then the best ones to meet your needs now?
Reassess your household bills as well, says Coleman. “As the seasons change and time goes by, our needs change and so do the offerings from our service providers.” See if you can save money by switching to a better package or policy for your home phone, cellphone, cable TV, internet, homeowners/renters insurance and auto insurance.
With this step, you might find that you want to cut spending, increase your income or some combination of the two.
“Make it a focus and constantly look for ways to either cut expenses or find extra cash to help achieve your goals,” says says Jenny Realo, executive vice president of the debt deletion company CareOne Services Inc. “This time of year creates some unique opportunities to give your finances a boost.”
For example, if you’re receiving a tax refund, use that money to pay down debt, starting with the credit card with the highest interest rate. Tidy up your living space while gathering funds: “Purge your closets for items to sell in a yard sale or on eBay and then put that money toward your debt; it will help clean up your home and your finances.”
The secret to getting the most out of this one: Take off the blinders and really look at everything to find out what is (and isn’t) working for you financially.
6. Consolidate cards and accounts.
“A lot of people with credit card debt spread out over multiple cards have no idea how much they owe or what their interest rates are on their debt,” says Dorothy Barrick, financial counselor for the nonprofit debt management counseling group GreenPath Financial Wellness.
Barrick suggests gathering all recent financial statements and listing the amount owed on each credit card, along with minimum payments and interest rates. From there, establish a plan to pay off one card at a time. Though it’s always fastest and most economical to pay off the highest-rate debt first, some people keep motivated by quickly paying off small debts completely, regardless of rate.
After strategically paying down debt, consider which accounts could be closed or consolidated.
A little bit of research could net better rates on everything else from your mortgage and car loan to your credit cards.
When looking for better rates, “Shop within your own bank and compare their rates to those offered by other financial institutions as well,” suggests Reynolds. “And don’t just shop online because not all institutions offer their products over the internet.”
In comparing interest rates, read the fine print. For example, does a bank require a minimum balance to switch to a higher interest savings account? What are the terms and conditions linked to a zero percent card offer? What are the closing costs associated with refinancing a mortgage to a lower rate?
“You have to look at the overall cost of the switch, not just the monthly payment,” says Reynolds.
Your credit card company may also be willing to grant an interest rate deduction. According to Barrick, cardholders with good credit scores and solid payment histories often qualify for reduced rates, which can help eliminate debt more quickly.
“It never hurts to pick up the phone and ask,” she says.
According to Reynolds, there is another benefit to managing fewer accounts: It makes it easier to monitor account activity and identify possible fraudulent use.
Before rushing to close credit accounts, remember, it could result in a short-term drop in your credit score.
It’s a good idea to keep your oldest credit card because “One factor of your credit score is how long you’ve had credit,” Reynolds says.
7. Check those beneficiaries, insurance and investments.
Some financial accounts (insurance policies, too) don’t pass through your will, even if you have one. Instead, the assets go directly to the beneficiaries you named when you opened the account or bought the policy.
Over the years, life changes. You get married, divorced, have children, etc. But too often, you forget to revisit those beneficiary selections. That means if the worst happens, the money in that bank account you opened in college, pre-spouse and kids, could still go to Aunt Edna or your ex.
So take a look at each of your financial accounts and insurance policies to make sure that the money will go where you need it to go now – not where you wanted it to go years ago.
In an effort to make those accounts the best they could be, Ann C. Logue, chartered financial analyst and author of “Socially Responsible Investing for Dummies,” suggests an annual investment review.
“For many people, their largest investment accounts are tax-advantaged retirement funds,” notes Logue. When to review those accounts? Now. “Spring is a good time because they can consider investments with their taxes.”
If you have an investment adviser, make an appointment to review your investment accounts. Never worked with an adviser? Consider hiring one.
“A good planner can help make sure your investments meet your goals, fit your risk and return preferences and suit your tax situation,” Logue says.
Your financial institution or employer may make referrals to financial advisers. If you’re doing your own search, Logue suggests asking about education and experience as well as their fees. Planners may work on a fee basis, commission or a combination of both.
The fee structure “may affect whether you can afford the planner, the types of recommendations you get and the incentives the planner has to work with you,” she says. “None of these is inherently better, as long as you understand that nothing comes for free.”