The 3 Best Ways to Spring Clean Your Finances

by Gloria Martinez 

Spring cleaning doesn’t just have to be for your home. Spring is a great time to get your finances in order and eliminate bad spending habits, since you get a clearer picture of your income after your taxes are done. Our tips for staying on track financially and determining the value of your assets will get you started.

 

1. Create a Personal Budget

Creating a budget is one of the first steps toward better money management. Without a budget, you don’t know where your money goes each month. While your taxes reflect your gross income, you need to start with your net income, or the amount of money you bring home each month. This take-home pay is what remains after social security, taxes, retirement, and other deductions are taken from your gross pay.

Then, record your regular monthly payments. This list should include your rent or mortgage, car payments, insurance payments, child care, student loans, and utilities. Start with these fixed expenses when making your budget, because the amount you owe doesn’t change from one month to the next.

Expenses like groceries, gas, school lunches, credit card bills, and other items that you pay weekly and monthly should come next. These expenses fluctuate, so dig through your bank statements and credit card statements to get an average. Calculate at least a six-month average for these variable expenses – an annual average is even better for accuracy.

Next, create a list of short-term and long-term financial goals. Make short-term goals those that you can achieve in one year. Listing your priorities will motivate you to stick to your budget to achieve your goals. If you need help in setting financial goals, check out this article from Nerdwallet.

Now, you’re ready to do some calculating. Subtract your fixed and variable expenses from your net income. Hopefully, you are left with a positive number instead of a negative number. If you have a low positive number or a negative number, you need to make some changes so you don’t spend more than you make.

Your variable expenses are the place to start improving your finances. Maybe you’re charging expensive meals to a credit card, so you need to start eating at home more often. Or, maybe you have been taking too many road trips or spending too much money on entertainment, and you need to cut back to reach your goal of paying off a credit card.

 

2. Determine the Value of Your Home

If the process of creating a personal budget makes you think that your mortgage is too high, now is the time to determine the value of your home and decide if you should downsize. One quick way is to use the assessed value on which your property taxes are based. However, these property assessments are not always accurate. U.S. News & World Report also suggests using an online tool to estimate your home’s value.

To get a better idea of the value of your home, work with a local real estate agent; most offer this complimentary service because they hope to establish a business relationship with you should you decide to sell your home. If you think that downsizing will help you achieve your financial goals, you need to know how much house you can afford after creating your budget to realize some savings.

 

3. Determine Your Net Worth

Spring also is a good time to get a handle on the worth of your other assets, like the amount in your checking and savings accounts, the amount in your retirement accounts, the estimated value of the items in your home, the value of your car, and the cash value of your life insurance. You will have statements from many of these accounts to help you prepare your taxes, so look to them for answers.

If you want to determine your net worth, subtract the balances of your home loans, auto loans, credit cards, student loans, and other loans from your total assets. Knowing your net worth will help you understand the importance of paying down debts or increasing your savings.

Prioritize spring cleaning your finances this year. Begin by creating a personal budget and getting on track financially. Then, determine the value of your home to help you calculate your net worth.

 

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