Most of us take the time to give our homes and garages a good clean every once and a while, so why not do the same with your finances? The tax season provides you with the chance to evaluate and possibly rethink your financial goals and actions. It can be a great time to get on the right track for the year ahead.
Here are the top tips for an effective financial spring clean:
Before you can work out where your finances are and where you want them to be, you need to gather all of your financial information. Pull your receipts, bills and tax returns together in one easily accessible place. These days paperless bank and credit card statements are the norm, so it is sometimes worth printing out a year’s worth of these records for your own reference
Conversely, don’t hang on to old financial information for too long or when it is no longer useful for you. As a general rule of thumb, it is advised that you keep documents relating to historical tax returns for seven years, but other financial information can generally be disposed of once you have confidently verified their accuracy.
Create a budget
A clear and realistic budget is the cornerstone of your financial success, For a budget to work, it must be updated regularly to reflect your changing circumstances. Big life changes such as a new job, marriage or the purchase of a property can have big effects on your personal finances and it is crucial to anticipate such changes as far in advance as possible and plan for them accordingly.
Find creative ways to save and earn
Saving for both the future and any financial emergencies that may arise is integral to good financial planning. From your budget, work out a realistic amount to save per month and stick to it – remember that your savings fund will grow with time and provide you with flexibility and stability if things go wrong. As part of this, you need to carefully consider your retirement plan and make sure that your RRSP allocations are appropriate.
There are plenty of other ways to save money if you have the time to go through your financial records. Your life, homeowner and car insurance policies should be regularly reviewed to make sure that you are getting the best coverage at the best price. Be sure to make sure that you are getting the best out of any rewards offered by your lifestyle choices (for example: air miles or credit card points).
Deal with your debts
Tackling debts like mortgages, credit cards and school loans is one of the best ways to improve your finances. The most important way to start is by knowing exactly how much you owe and how much you are paying in interest charges. Once you understand your debt amounts, do some research to make sure that you are getting the best possible deals from lenders and are paying the least amount of interest possible. Consider consolidating your debts.
Once you have readjusted your debts to the lowest possible cost to you, it’s time to make a realistic plan to chip away at them. Paying off the highest interest debts first will save you the most in interest charges in the long term, but you may want to consider that the accomplishment of paying off smaller debts can sometimes motivate you to continue. It can also save you some money by not having to pay interest on two debts for as long.
If you are interested in creating a more in-depth plan to clean up your finances, consider talking to a financial advisor. Their expertise and years of experience can help tailor a strategy that works for you and your situation.