10 Ways to Clean Up Your Finances
- Clean up your finances this year by reducing spending, increasing savings and holding yourself accountable.
- Reduce spending by reviewing subscriptions and paying off high-interest debt as quickly as possible.
- Up your savings by maxing out your 401(k), rebalancing your investments, and considering flexible spending accounts and 529 tuition accounts to pay fewer taxes.
No matter the current status of your finances, there’s always room for improvement. It’s common for people to change their long-term financial plan as they get closer to retirement, but it’s also important to revise your financial strategy in the short term to help address current concerns or reach new goals.
Whether your current goals include getting out of debt, planning for retirement, or saving up for a home, these 10 tips could help you clean up your finances and move forward with more confidence.
1. Initiate a spending review
If you’re looking for ways to cut spending because you want to save money or get out of debt, a spending review is a good place to start. Take a look at your expenses from last year. Were there any surprises? Should you have a separate savings account for vacations or taxes? Did you overspend in certain categories? Reviewing your spending with a critical eye can help you make a solid plan going forward.
2. Max out your 401(k)
If you want to save more for retirement, you may want to consider increasing their 401(k) contributions. First, see how close you are to the $19,500 annual maximum and increase contribution amounts accordingly. If you are age 50 or over, you can further increase the amount with a catch-up contribution of an additional $6,500. Keep in mind that this pre-tax deferment into a 401K account can also help lower your tax rate.
3. Review your subscriptions
In today’s subscription economy, you may be wasting money paying for services you rarely use. If you’re searching for an effortless way to save a little extra each month, evaluate which services you use all the time versus those you only use occasionally. Sometimes it’s less costly to make a one-time purchase rather than pay for an ongoing service—for example, pay for the season of a particular TV show rather than a continuing subscription to a streaming service. There are even apps that will help you find and cancel your unnecessary subscriptions.
4. Rebalance investment accounts
As you change your financial goals, you need to change your financial strategy. Although some portfolio managers will rebalance your investments quarterly on your behalf, you should make sure it’s done at least once a year. Adjust the weightings of your portfolio so they’re more aligned to your new goals. Sell or buy assets to maintain your new desired level of asset allocation. By rebalancing in these ways, you can increase or lower the amount of risk for your investments.
5. Donate to charities
Worried about tax season? Donating to recognized charities could help lower your tax bill. Whether you donate cash or household items, charities will issue you a receipt that recognizes the amount of your generosity—allowing you to write off your donations during tax time.
6. Fund 529 college savings plans
Whether you’re planning to go back to school or you want to help your kids pay for college, a 529 plan can help you save for school with pre-tax dollars. As an added bonus, you don’t have to pay federal or state income tax on the earnings, provided the cash is withdrawn to pay for college or graduate school tuition, fees, room and board, or books. Plus, in some instances, you may be eligible to get a state income tax deduction for your contribution.
7. Protect your identity
The beginning of the year is a great time to check your credit report and make sure that your identity is protected–one critical way to help clean up your finances. By law, you’re entitled to a free credit report each year via AnnualCreditReport.com, which is the only site legally authorized to provide these reports for free. By reviewing your report, you can ensure you recognize all of the accounts in your name and that your credit is fully intact.
8. Evaluate healthcare accounts
If you have a Flexible Spending Account (FSA), make sure you use the funds before December 31st because, as they say, “use it or lose it.” This is a good time for scheduling doctor’s visits since FSA funds can be used for co-pays, glasses, contact solutions, and more.
If you have a Health Savings Account (HSA), then you might be able to rollover funds and continue to increase the savings you have for the later years. If this is the case, you might want to consider contributing the annual maximum amount as this account can help during retirement.
9. Update accounts and documents
Whether it’s insurance coverages or legal documents like wills and trusts, it’s smart to review these annually. You may need to change amounts or names of beneficiaries. For example, if you become a grandparent, then you might want to ensure your grandchild will have a nest egg toward college.
10. Evaluate debts
Whether your debt has increased due to a medical procedure, unexpected home or car repair, or credit card bills, create a plan for paying off your debts in a timely manner. If you want to avoid getting stuck with high-interest payments for years to come, try to pay more than your minimum payments each month.
And if paying your minimums each month seems too difficult to manage, you could explore other debt relief programs. Getting out of debt as soon as possible is another essential way to clean up your finances.
Get help planning your financial future
Learning how to deal with debt, money, and planning for your future doesn’t need to be hard and you shouldn’t have to do it alone. We have developed a simple to follow guide to help you find the tools you need to clean up your finances and move toward a better financial future. Get started by downloading our free guide right now.