Spring-clean your finances for the new year
Spring-cleaning is a task that few of us savour, even though we realise it’s a necessary ritual. The benefits of a clean and decluttered home are obvious and can be appreciated by the whole household because of the more wholesome living experience you’ve created.
If the benefits of organising your home are so clear, then why not apply the same principle to your personal finances?
Actively managing your household finances could create a more financially secure life, with clear benefits including:
- Awareness: This helps you make informed decisions that positively impact your financial future.
- Control over expenses: By knowing where your money is going, you can eliminate or reduce unnecessary expenditure.
- Goal setting: Setting achievable financial goals helps to create a roadmap for your financial journey.
- Reducing stress: Actively managing your finances and having a plan can offer peace of mind, which in turn contributes to a better mental state.
- Opening up other opportunities: by decluttering your finances, you can find room for other savings and investments plans.
- Emergency safeguard: A key to securing your financial independence is to shore up your emergency savings to cover unforeseen crises.
Why financial spring-cleaning matters
Financial health is as vital as physical or mental well-being. It affects your ability to make key life decisions like buying a house, investing in your children's education, and planning for retirement.
It is easier to keep your finances tidy by doing so on a continuous basis, and the occasional spring-cleaning offers a great starting point.
The first step to effective financial management is knowing your present financial situation. Start by creating a detailed list of all your income sources, such as your salary, rental income, or side hustles. Then, outline your fixed and variable expenses, including items like rent, utilities, groceries, and leisure activities.
Drawing up a simple household budget like this will give you a clear picture of your financial health.
Decluttering your expenses
After assessing your financial situation, the next step is to cut unnecessary expenses. Review each expense critically and decide whether it's essential or if it can be reduced. Small changes like switching to a cheaper mobile or data provider or cancelling subscriptions you rarely use can add up and give you extra funds to use for more essential items.
With some extra money freed up, you can start saving or investing for your future. Typical options to consider range from low-risk savings accounts or bonds to higher-risk ventures like listed stocks and real estate.
The right investment for you will depend on your risk tolerance, financial objectives, and the time you can commit. If you're new to investing, we suggest that you consult with a financial adviser to better understand your options.
As part of this decluttering process, it pays to set realistic financial goals for your long-term financial health. Whether you're saving for a holiday, a new car, or establishing an emergency fund, having a financial objective gives you a target to work toward.
6 Steps for your financial spring cleaning journey
Having covered why it pays to keep your finances in order, here are six practical steps you can take to spring-clean your finances:
- Audit your income and expenses: Spend an afternoon going through your bank statements to get an accurate picture of your cash flow.
- Identify cuts: Make a list of at least three non-essential expenses you can reduce or eliminate right away. Act on it within a week.
- Set financial goals: Write down your short-term, medium-term, and long-term financial goals. Put them somewhere visible to serve as a daily reminder.
- Consult a financial adviser: If you find it challenging to make sense of different investment options or set realistic financial goals, make an appointment with a financial adviser for professional advice.
- Open an investment or savings account: Research and decide on at least one form of investment or savings account which is most suitable for your risk tolerance. Open an investment or savings account by a set date if you don’t already have one.
- Regular check-ins: Schedule a bi-annual review of your finances to track your progress, reassess your goals, and make necessary adjustments.
By taking these steps, you're actively participating in your financial wellbeing and laying the groundwork for a more secure future. Financial management is an ongoing process, and these action points can serve as your roadmap for keeping your finances in good shape all year round.