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Spring Cleaning your Finances

There is sure a lot of content out about spring cleaning right now. At the height of the pandemic, it seemed everyone you knew was posting photos of clean and organized pantries, closets, and drawers.

Did you know that cleaning your finances is just as important as cleaning your home? It’s also something you should consider doing on at least an annual basis, but quarterly would be better.

Here are some tips to help you get started on spring cleaning your finances:

  1. Clean out old and unneeded information
    You are required to keep all required records and supporting documents for 6 years from the end of the last tax year they relate to — or 7 years total from that tax year to the time you no longer need the record.
    Make sure you don’t have old and unneeded information lying around, because not only does it take up space, it can add confusion if it accidentally gets added in the wrong spot.
  2. Clean up and organize your paperwork
    Whether you use a filing cabinet, folder system, or store everything electronically, make sure your system is organized and easy to navigate.
    I encourage clients to get into the habit of digitizing their records as it saves space in your home, and protects you if something were to happen, like (heaven forbid) a fire or flood.
  3. Set financial goals for the year, or check progress on previous goals
    It’s important to set financial goals so you have something to work towards, and so you understand your spending habits.
    Last year I set up a tool called YNAB (You Need A Budget) and Melanie and I have seen our savings grow tremendously by keeping a regular eye on our spending, but also setting up different accounts for different goals (like something new or a rennovation).
    It has also allowed us to be mindful of the areas we were spending money that was wasteful, and we have been able to cut back on that, and allocate our income in a more meaningful way.
    If you’d like to check out YNAB, you can get a free 34-day trial.
  4. Review your Monthly Budget
    Having a strong understanding of your monthly spending habits can make a big impact on your finances.
    Many people don’t have a monthly budget, but I encourage you to start if it isn’t something you have historically done. Tracking your spending habits, and doing your best to stay within a monthly budget, will help you achieve financial independence much quicker, but it will also support your goals and dreams in a more timely fashion, help you prioritize your spending, and help you save intentionally.
    There are many tools on the market you can use to help you create and track your budget. For us, YNAB has been easy to use and has allowed us to track our monthly budget at our fingertips, drastically increasing our savings over the last 12 months.
  5. Cancel unused memberships and subscriptions
    With all of the streaming services out there, it is really easy for the cost of our subscriptions to get out of hand. The same goes with memberships — many of which are unusable during pandemic restrictions.
    I encourage you to take a look at your spending, and determine if there is some fat you can trim. Maybe you don’t need six different streaming services at once, but can filter through the ones you like at various times of the year.
    Prioritize your favourites, and get rid of the rest. It won’t take long for you to notice the savings from this simple, yet effective, step.
  6. Develop an emergency savings plan
    Everyone hates an irregular expense, or something that catches us off-guard out of the blue. In 2020, we had two. First our refrigerator went, and then our washing machine. We were grateful we had started an emergency savings plan to help us cover these unexpected, but unavoidable expenses.
    Job losses over the pandemic have also been at all-time highs, but many people lose their job unexpectedly every day. Build a buffer in your emergency savings plan for an unexpected job loss, and try to include 3–6 months of salary or wages. This doesn’t build overnight, but you will be grateful you have it if something were to happen and you need to rely on it.
  7. Plan retirement contributions
    Everyone dreams about the day they can retire, but that time is coming later and later in life for many. Planning for retirement is critical, and I recommend you start as young as possible. The sooner you achieve financial independence, the sooner you can quit your 9–5 and move onto something you love to do.
    By regularly adding to an RRSP, or starting a TFSA, every little bit helps and it’s encouraging to watch it grow. If you have some extra income and you aren’t sure what to do with it, contact a certified financial planner and start some smart investments.
  8. File your taxes
    Whether you will receive a refund, or owe the government money, filing your taxes is an important part of spring cleaning your finances. It’s nice to have your refund hit your bank account, and it’s important to avoid penalties and late fees if you have an amount owing.
  9. Review your insurance policies
    Your insurance policies typically evolve as you age. I would encourage you to review your policies on an annual basis, as part of your financial spring cleaning, to make sure everything is in order, and you have the policies that make the most sense for you.
    A lot can change in a years time, so the policy you selected last year, may not be applicable to your circumstances today.
  10. Automate your savings
    Automating your savings is perhaps the easiest thing you can do, that provides the biggest impact. By setting up automated, recurring transfers, you won’t be tempted by extra cash in your bank account, but it will also force you to spend in a more meaningful way, when you have less to work with. It takes away the temptation to spend, and gives you long-term benefit.
  11. Automate your investments
    Similarly to automating your savings, automating your investments will come with long-term benefits. Investments are also getting easier and easier to manage on your own through robo-advisors, apps, and endless resources at your fingertips to provide tips and tricks.
    If managing investments on your own doesn’t sound appealing, there are a number of fantastic certified financial advisors in Alberta that can set you up for automated withdrawals into investments, so you can grow your money.
  12. Review the allocation of your assets and funds
    As you age, it’s important to regularly review your assets and funds, and determine if there are areas you need to get out of, improve, or get more of. Rebalancing your asset and fund portfolio on an annual basis will help you to make sure your assets are appropriate for your age, goals and risk tolerance.
    This is also something that if you don’t want to tackle yourself, an experienced certified financial advisor will be able to do on a regular basis.
  13. Create a system that allows you to track key numbers every month
    It sounds overwhelming to do, but I assure you, once you have it set up, you won’t regret it.
    Using a tool of your choosing, create a system that allows you to check on your entire portfolio, frequently. For us, this has been YNAB. I linked all of my accounts, and now we can see the health of our finances at our fingertips. By tracking our assets, debts and net worth, we are making smarter decisions with our money, and can realistically set goals and develop our budget.
  14. Regularly review your credit card and bank statements for errors and fraud
    Although banks and credit institutions like to think their systems are flawless, they are not. Because everything is electronic, and most of us no longer receive paper statements in the mail, reviewing statements can be easy to forget. But because mistakes happen, and fraud is becoming more and more common, review your statements on a monthly basis to make sure everything is correct.
    Just recently, my wife made an online purchase at a children’s retailer. Upon checking her statement, she discovered that a second purchase was made at the same retailer immediately after her purchase. She thought perhaps they split the transaction into two, but noticed another purchase a day later for only $1.14 she didn’t recognize. Because there were now two transactions that were unfamiliar, she phoned the bank and sure enough someone was attempting to make fraudulent charges with her credit card number.
    Keep an eye on your statements. It’s hard enough to get ahead these days — you don’t need to be paying for someone else’s spending on top of everything else.

Like a clean home, clean finances will only happen with some hard work and organization. Set aside some time to take a look at your finances and go through the list above. Nothing will happen overnight, but you will start to see the benefits quickly, and it will motivate you to keep going.

Noah McDonald
The Mobile Accountant