Getting your finances in order now will help you enjoy your summer to the fullest
With summer a matter of weeks away, you're probably busy planning your next vacation. But are your finances ready?
Vacations can drain your bank account if you aren't prepared. If you're not ready now, don't worry! You've still got time to spring clean your financial house before it's time to hit the beach.
How to Spring Clean Your Finances
- Decide to Make the Effort
- Check Your Credit Reports
- Decide Whether to Pay Debt or Invest
- Shred Unimportant Documents and Update Important Ones
- Budget, Budget, Budget
- Look over Accounts and Fees
- Automate Payments
For most people, it wouldn't be too hard to clean up their finances, but they have to actually decide they want to do it before they can make any progress. This first step—deciding to make the effort to get your finances in order—may actually be the hardest of all, especially if you don't really know how to do it. It's easy to make a clear step-by-step plan once you actually decide to do the work.
Take this opportunity to request the three free credit reports that you are entitled to receive under the law. You can either request all three at once or take them one at a time. If you want to improve and monitor your credit over time, it's a good idea to request one report every three or four months.
Once you get your report, look over it carefully. Make sure that all of the information is correct—not just your name and address, but your accounts as well. If there are any loans or credit accounts listed on the report that you did not open, dispute them by writing to the credit bureau that provided the report. This includes accounts opened in your name by family members, such as parents. Even if they didn't mean to hurt you, such accounts damage your credit and make it harder for you to get loans.
Many people wouldn't think twice about paying off old debt, but stop and think about it for a moment. Investing can lead to large long-term gains that are very useful. To figure out which you should do, compare the interest you're paying on your debt with the current (and anticipated) rate of return on the investment in question. If you will pay more in interest on your debt than you would earn on the investment, it might be best to pay off the debt.
Look over your account statements, pay stubs, bills, and any other financial records. If the document is absolutely necessary, keep it; if not, shred it. Keep tax returns, canceled checks and receipts, and all records support tax deductions for six years, since that's how long the IRS has to audit you.
You should also take this chance to review your insurance situation. Figure out how much protection you need and compare it with your current policies. Do you need to increase coverage on your house? Will it help to lower your car insurance premium if you increase the deductible?
Who are the beneficiaries on your policies and accounts? If you aren't sure, find out. Policy documents may take precedence over your will.
Speaking of wills, do you have one? If not, make one; if so, check over it and update if necessary. Think about making a Power of Attorney and a Living Will and/or Medical Directive as well.
Do you use the same password and login information for all of your online accounts? If so, go to each account and change each password to something different from the others. You can keep your passwords either in a password manager or a document that is encrypted or password protected.
Store all of these documents in a safe place, such as a vault, safe-deposit box, or safe.
We know. Budgets are boring. But they also keep you on track to meet your financial goals and stop you from overspending, so it's important to have one.
If you don't, go back over your bank and card statements and note where and how much you spent. You can write it all on a piece of paper, put it into a spreadsheet, or use a special budgeting program like You Need a Budget or Mint—the form doesn't matter as long as you've got the numbers. Having the numbers in front of you in black and white can be unpleasant, but it forces you to confront bad habits and can reinforce good ones.
Take it one step at a time. The main thing is to make sure that you've got more money coming in than going out. If that's not the case for you, take a hard look at your expenses and figure out where and how you can make cuts.
How many bank accounts do you have? How many credit cards? What are the fees you have to pay for each?
If your bank account was free when you first opened it, check to see if it still is or if you're getting hit by a monthly maintenance fee now. If the bank doesn't charge such a fee as long as you keep a certain minimum balance in the account, make sure you've got that amount in there.
Do your credit cards charge an annual fee? If so, decide whether or not the value that the card provides—such as rewards and points—is worth the fee. If it isn't, close it unless doing so will hurt your credit significantly.
Do you have any outstanding debt on your credit cards? If so, what's the interest rate? Find out if you're qualified for a balance-transfer card, but come up with a payoff strategy before you apply for any new cards. If you don't, you risk incurring more debt.
If your bills offer the option of automatic payments, sign up. This will ensure that you won't be late on your payments and run up late fees as well as hurting your credit score—as long as you've got enough money in your bank account to cover the payment.
If your account includes the option of automatically transferring a set amount to a savings account, enable that too. If not, talk to your human resources department and find out if they can split your direct deposit so that a certain amount will go straight into savings.
This may seem like a lot of work, but remember: the sooner you get it done, the sooner you'll be ready for summer!