Time for a spring clean of your finances
Posted on 5th March 2020
Spring has (almost) sprung and with the new season comes the most popular time of the year for a full on decluttering session!
You may think of the usual decluttering that takes place at this time of year. You might clear out your wardrobe, get rid of things you don't use anymore around the home, perhaps donating them to charity or gifting to friends and family. You may even go an extra step and remove clutter from your life in general by stopping doing the things that don't bring you joy and hanging out with the people who don't make you happy anymore.
But there's always one area of your life that can always do with a clear out, and that's your finances.
Get your money affairs in order
It doesn't have to be boring, long-winded or complicated to get on top of your finances. Honestly! And it's oh so rewarding to know you're on top of your money - not to mention that you'll almost certainly be better off by the end of it.
Here are my top tips for decluttering your finances and getting on top of your fiscal affairs...
1. Get on top of your budget
First and foremost, creating a budget is the perfect way to address where your money comes from and where it seems to disappear to every month! It's super easy to do and once you've got a budget document set up in Excel or Google Sheets you can use it indefinitely. You can create a budget for yourself or your household with everybody's incomings and outgoings combined - or both.
To do this, first gather all your financial statements - this includes bank statements, bills and any and all information you can find regarding your incomings and outgoings. Then, add up all sources of income per month - this should include salary, dividends, interest from savings and investments and so on. Next, create a list of monthly expenses - rent, bills, mortgage, transport costs and anything else like food and savings.
Your outgoings should be split into two categories: fixed and variable costs. Fixed cists are things that don't change month to month like your rent or mortgage, insurance payments, utilities, memberships, debt payments, regular deposits into a savings account and so on. Variables are things like grocery shopping, petrol or travel costs, entertainment, gifts and anything else you may buy on an ad-hoc basis. This part is probably the most time consuming but is so important to get right!
Next, you simply add up your incoming and outgoing costs. If your incoming money is higher than your outgoing costs, then you're off to a good start! If not, figure out where you can make savings, and start making those changes immediately. Can you cancel any memberships or subscriptions that you don't need anymore? How about your grocery shopping - can you switch to a lower cost supermarket? Do you have a gym membership that you rarely use? (We've all been there!)
It's a good idea to check your budget on a monthly basis or at least every quarter, to ensure you're on track and not wasting money.
2. File or shred? Get that paperwork in order!
Sorting through paperwork is never going to be the most thrilling exercise but again, it's essential - and once you have a system you stick to, you'll save heaps of time.
You should already have all your financial statements together from your budget exercise - so the first part is done. Result!
Next, split them into two piles: for filing and for shredding. The shredding part is easy - and if you don't have a shredder already, this one from Amazon is less than £30 and even shreds credit cards! With identity theft rife, I don't need to stress the importance of shredding and not just throwing paperwork away.
Next, take your pile of papers to be filed and create categories. Business and personal could be your two main categories, then create relevant sub-categories under each one including a section for following up (in the case of chasing invoices, orders etc).
3. Check your credit report
This is particularly important if you're expecting to take out a mortgage or require a large sum of money to borrow in the near future. You're entitled to a copy of your credit report from any of the major credit check companies - Experian perhaps being the most well known - so request it and analyse it.
Inaccurate information on your credit report can cause your credit score to dwindle, making it more expensive and more difficult for you to borrow money so ensure that everything on there is up to date and correct. If you're in a large amount of debt and are finding it difficult to make payments to creditors, StepChange is a government-backed charity offering a completely free service to anyone in debt.
4. Plan for the future
Now you've got your budget sorted and your paperwork in check, you can plan for your future. Identify any big events or plans coming up that you need to save for - it could be anything from a wedding and buying your first home to putting money away for your childrens' futures. Perhaps you want to travel the world and become a digital nomad! Whatever it is, ensure you have a plan for those looming expenses.
If you find you need to save more than you can afford, go back to your budget and consider where you can make savings. Reassess that subscription box costing you £30 a month, or see whether you can make your money stretch further on food.
When there's a will, there is almost always a way.
Nicola J Sorrell -
Founder | Xero Champion | IR35 Expert
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