Spring is the traditional time to scrub up your surroundings and get things organized. This spring, as inflation soars, many people are still recovering from pandemic layoffs and pay cuts, and more people are getting behind on credit card and loan payments, many of our finances need some scrubbing.
Whether you’ve used up your emergency savings, taken on credit card debt, can’t figure out how to pay for rising prices at the pump and the grocery store, or just spent too much on food delivery during the past two years, a financial spring cleaning routine can help get you back on track. Start with these four steps for a fresh financial restart.
Freshen your budget. It’s a good idea to revisit your budget on an annual basis anyway, but this year, doing so may be especially important. Inflation has driven up prices on almost everything, costing the average U.S. household almost $300 more per month. Most people need to adjust their budgets to accommodate the rising prices.
Go through your budget, one item at a time, and look for opportunities to make cuts. If you learned to cook at home more during the pandemic, you can rely on those skills to cut back on dining out. Maybe you’re working from home and don’t need to spend as much on clothing and haircuts. Try to plan your driving strategically, such as running all your errands in one trip, to save money on fuel.
If you have important financial goals to meet—such as saving more and paying off debt—your willingness to make sacrifices now will pay off in the long term.
Recommit to savings goals. Building and maintaining savings is crucial to help you manage through unexpected expenses, which are inevitable. You may also need to save for other goals, such as a car, home, or vacation. If you haven’t been able to save much recently, reexamine your savings goals. You may need to reduce your monthly savings amounts or add some extra time to reach your goal, but don’t give up.
Include savings as part of your monthly budget so it will be a predictable expense. Consider making savings automatic by sending a portion of each paycheck straight to savings.
Review your credit report. Take time to check your current credit reports; you have one from each of the three credit bureaus. Examine the personal information, credit accounts and credit inquiries, and look for errors. If the report says you’ve made late payments, but you’ve always paid on time, that error should be corrected. If it includes addresses where you’ve never lived or names and birth dates that aren’t yours, those also need to be corrected. You’ll need to dispute any errors by sending a letter to the credit reporting agency that generated it.
Also, take a look at your credit score. If you’ve had to use credit cards to manage through the difficulties of the past two years, your score may be lower. But it’s important to know what your score is now so you can track progress.
Devise a debt payoff plan. If you maintain unsecured debt such as credit cards, you’ll have to pay high interest rates. That can also make it harder for you to reach your financial goals. If you’re carrying extra debt, make a plan for paying it off. That could mean focusing on the smallest debt first and paying as much as possible on it until it’s paid off, while making minimum payments on everything else. After paying off one debt, move to the next one.
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