Spring cleaning your finances
This month, I wanted to spend some time talking about spring cleaning. But not spring cleaning the way that we traditionally think about it with wiping down our walls and, and cleaning our floors. No. We are spring cleaning our lives and our businesses. And so if you have not listened to the last three episodes of the show go back and check those out. We've done an episode on spring cleaning your social media, your life, and your business. This week I am sharing my 4th post in this topic and will show you how to do a spring cleaning of your finances.
I get so many questions from people about how to get your money under control. And how do you just stop the cycle? I had a blog called Payment Free Life, where I wrote about our journey of getting out of debt and paying off over $220,000 of consumer debt. Jeff and I have turned that around. We now have emergency savings and lots of equity in our house. And we also have savings for retirement and all the things.
Where do you start with spring cleaning your finances?
And so we get a lot of questions from people about what to do and where to start. I'm going to share with you three steps to start winning with your finances. And we're not going to talk about budgeting at all. For a lot of people sticking to a budget is hard. It's a lot to track. And it's a lot of work. So I'm going to show you a way that you can get ahead financially without doing all the tracking.
Step 1: What is your goal with money?
If you are going to change your financial situation, you need to know what your goal is with money. And it can't be "I don't want to be poor. I don't want to be broke." It cannot be those things. You need to have a very specific goal.
So the goal could be, "I want to pay off my credit cards," or "I want to pay off all my debt, other than my mortgage," or "I want to build up an emergency fund or o put X amount in my retirement account every month." You have to have a very specific goal to start with. And that goal can be whatever you want.
If you're not sure what you want it to be, sit down somewhere quiet for a second. Close your eyes and ask yourself if you made one change with money, which one would you make that would help you sleep better. And that's different for everybody.
As your spring cleaning your finances, what will make you sleep better at night?
For me, after I had cancer, I sat down and looked at all of the payments that we had. If something happens to me like Jeff is doomed because all of our debt was essentially joint debt. And so if something happens to me, the payments that he would have to make every month were just astronomical.
So I decided that my first step was going to be to eliminate all those payments. We needed to pay off our credit card debt, home equity line, and student loans.
For me, that thing helped me sleep at night when having that debt gone. The next thing that helped me sleep at night was having a nice fat savings account.
You have to find that thing that's going to make you sleep better at night.
Have your goal front and center
Once you've figured out whatever that thing is for you, you need to have it front and center so that you see it regularly. It's like knowing your why. Why do you want to do this? Because there are going to be times that it’s going to get hard.
Think about what will motivate you to stay on track. Make sure it is very specific. You cannot have a goal be "I don't want to be broke anymore." That won't work. It's not enough. And it's also not something you can check off and say, "I've done it."
If you don't have a plan for your money your spending will increase as your income increases
One thing that I have learned is that you will fill whatever vacuum you put it in. And so the more money you make, your spending will grow with it. Unless you have a plan.
When you got your first good job after college and your income went up, your spending went up with it. And then you got a promotion or a better job, or you got married, well now there are two incomes. You're spending probably grew along with the increase in income.
The money will fill that void unless you have a plan for it. So that's why I need you to have a plan. So what's your goal with your money?
Step 2: Figure out where your money is going right now
The second step you need to figure out is where your money's going right now. And I'm not talking about having a budget. But what I want you to do is gather up all your credit card statements for the credit cards that you use regularly. Gather up your bank statements. You need to know all the ways that you're spending money. Don't forget the store credit cards.
Now here's what I want you to do as you're going through your statements. I want you to start canceling things. Here's one thing that we do in our house. We are not chronic subscribers to anything except Amazon Prime and Disney plus.
As your spring cleaning your finances take a good look at your monthly subscriptions
If we want to turn on Netflix, we do. You can turn your subscription on and off at will. You're not locked into a subscription with Netflix or Hulu. So when I want to watch a show on Netflix, I turn on my subscription and pay for the month. Then I turned it back off. If you turn on the subscription and then turn it back off, you have the subscription for 30 days.
So go through all your subscriptions and turn things off. Look at what things you are not using. By the way, I do that for email subscriptions as well.
So if I think I'm going to use something and I pay the subscription annually to get the discount, I will then turn it off after the first day so that I don't get charged again in a year.
Figure out what areas in your life you are spending more money on than you think
Next, I want you to figure out what are the areas in your life where you're spending way more money than you think you are. For us, when COVID started, the amount of money that I was spending on Amazon and groceries was a lot.
I remember going through those statements, and we didn't save any money for probably the first four months of COVID. Because we just didn't know what we needed.
You need to go through your statements and figure out the areas that you turn to in stress. And I think we all have those areas. So go through your spending. Figure out where your pain points are. And then I want you to unsubscribe from store emails. I want you to think about not using your store credit cards. At least in the areas that you turn to in stress. Or if there are any areas where you're spending too much money. Mark those down, and stop all the text messages from the stores and unsubscribe from emails.
Once you have an idea of where your trap areas are, of where you spend in stress. and you've turned off a whole bunch of subscriptions. I want you to keep track of how much money that is every month. Because that is going to be the starting basis for change.
Look at what your saving in subscriptions and how much you are saving on whatever area you are cutting back in. How much is it? Now put that money towards your money goal.
Step 3: Pay your goal first
Step three is where you implement. Remember that goal that you made with your money? I want you to spend smarter and pay your goal first.
Whatever your goal is, whether it's paying down debt, building up savings, or whatever it is. Every time you get paid or you pay yourself if you're self-employed or when your spouse gets paid, take some of that money out and put it toward your goal.
Once you've figured out when money is coming into your account, and you figured out how much you are saving in subscriptions or on cutting back on spending, make sure to pay your goal.
Say you are saving $150 a month from undoing subscriptions. Or from cutting back on your groceries. If you get paid twice a month or your spouse gets paid twice a month, then take $75 for each pay period and put it towards your goal. So if it's paying down debt, you're going to make a $75 payment to whatever debt that is. If it's savings, you're going to take $75 and put it in savings.
How to make sure you are cutting back in spending when spring cleaning your finances
So how do you make sure that you cut back your spending in the areas you say you're going to cut it back. If it's a subscription and you unsubscribe, then you've unsubscribed. But then you think you want to re-subscribe. Put something on the bottom of your TV. Say, paying off debt, or whatever will motivate you. So that when you do go to re-subscribe, you have to think about it a little bit.
The other thing that you could do too, is you could change your password. So it's something that reminds you of your goal. If you have to log into Netflix, that login is going to remind you of your goal.
When spring cleaning your finances figure out how to curtail overspending
If credit cards are a weakness for you, no amount of rewards is going to make up for your extra spending. You might want to consider not using credit cards or only using credit cards for gas, or in areas, you aren't going to overspend.
If you overspend on groceries try using cash if you can. If you can't use a prepaid card. You could also open another bank account. And put your grocery money into that bank account. And then when your buying groceries, that's all you've got to spend.
When spring cleaning your finance the key to reaching your money goal
The key to making this work is taking out the money for your goal first. Because if that money is gone, you can't spend it. You're limiting yourself to how much you can spend.
You have got to figure out a way that you can keep your spending in check. You can open a couple of targeted bank accounts, and then use those for spending in particular areas where you might overspend. That's kind of the profit first concept.
If you haven't read Profit First, it's a book about managing your business finances, using multiple bank accounts and percentages. And there's a way that you can modify that for personal as well. That works pretty well.
So let me know in the comments where your problem areas are.
Recap on how to do a spring cleaning of your finances
- Have a very specific money goal
- Figure out where your money is going and stop it from going there
- Spend wisely and pay your goal first.
Let me know what your spending traps are. And let me know one thing that you're going to change this month to get your financial house in order.