How do you feel when you think about your current financial situation? Do you tend to put your head in the sand? Or maybe you’re on the other end of the spectrum, and you anxiously look at your account balances every day? It’s time to spring clean your finances!
These 3 simple steps can help you feel more in control of your money. They’ll help you better understand what you have, where it’s going, and what you want it to do for you!
Consider it a spring cleaning of your financial house, if you will, to make sure everything is in order and you’re focusing your energy on the right stuff!
Each year, we walk through these steps with our clients so we can track progress, set goals, and follow through on actionable items to move them in the right direction.
3 SIMPLE STEPS TO SPRING CLEAN YOUR FINANCES:
Step 1: Calculate your net worth
- Approximate time: Beginning of the Year (January or now if we’re past January)
- Best moment to do it: Each year, as you receive your year-end account statements
- What you need on-hand: List of total account balances and list of debts
Just like your smartphone or watch can track your overall health based on stats (how many calories you burn, how many steps you take, how much you sleep each night, etc), there are ways to track your overall financial health too.
How? Update your net worth statement annually. The goal here is for your net worth to increase year-over-year.
Gather all your December 31st account statements and compile them into one place. Then track one year to the next to see trends and highlight where you want to focus your attention for the next 12 months.
Need some ideas on how to get started? Check out this article on Investopedia.
Some benefits of calculating your net worth:
- Know what type of accounts you have (bank accounts, retirement accounts, lines of credit, etc) and how they’re registered (i.e. whose name they’re in)
- Get a quantifiable way to measure your overall financial health – the more positive your net worth, the healthier you are financially
- Keep track of where all your accounts are and how to access them so you don’t end up with a bunch of “orphan” accounts
Step 2: Review your tax return
- Approximate time: Spring time (March – May)
- Best moment to do it: After you’ve filed your tax return for the previous year
- What you need on-hand: Your completed 1040, and related tax forms and documentation you used to file it
Did you know that your tax return is full of important information that can help you be more strategic about the year ahead?
Most people forget about their tax return as soon as tax season is over, checking it off the to-do list and thinking they won’t need to worry about it for another year.
But looking at your prior year’s tax information can bring the following benefits:
- Understand where your income is coming from and how it’s taxed
- Confirm that everything was recorded correctly. Filing an amended return may be a pain, but it could save you money or clarify what information you need to give to your CPA next year!
- See where you are falling in your current tax bracket & how to manage your taxable income going forward
- Know where you stand relative to income limits for tax credit and or deductions, or which savings strategies you are eligible for
- Know which receipts to hold on to in future years (invoices from big purchases or home updates, donations to charitable organizations, business or school-related expenses, medical-related expenses)
- Know how much tax you paid, and whether you should review your tax withholding elections or make estimated tax payments throughout the year
How to review your tax return? We’ve detailed exactly how to do it in this post!
Step 3: Set 1-3 SMART goals
- Approximate time: Spring – Summer (March-August)
- Best moment to do it: When you’re ready to get serious about making your money work for you, rather than the other way around
- What you need on-hand: A way to take notes, your calendar to set a reminder to check-in, your favorite beverage of choice
Now that you have an updated picture of your current financial situation, it’s time to plan for the remainder of the year!
➡️ Write down 1 to 3 SMART goals that you want to achieve before December 31st to move your financial goals forward this year.
SMART goals are:
- Specific
- Measurable
- Achievable
- Relevant
- Time-bound
An example of a SMART goal for your finances would be:
– Increase your pre-tax contribution rate to your 401k by 1% each quarter so you make the maximum annual contribution by year-end
– Set aside $1000 each month through the end of the year to fund next year’s big international vacation
– Save $500 each paycheck so you can make the maximum contribution to your HSA by the tax filing deadline
Additional tip:
- Don’t overwhelm yourself with too many goals! It’s better to only have 1 goal to focus on and achieve it than to have 5 goals and fail.
- Stay accountable to your goals! Set reminders on your calendar for the tasks you need to do and remember to do regular check-ins.
- Choose a fun reward! Make this experience pleasant for yourself! Maybe you decide to take yourself out every time you reach a milestone.
That’s it! Congratulations!
You’ve just taken the first steps to spring clean your finances and take control of your money.
Want to go deeper? Here’s how to plan your first money date!
Here at Middleton & Company, we believe that being in control of your financial situation can help open the doors to more options in your life! Do you desire to take a career break and fly across the world? Let’s start with understanding what you have and where it’s going. Now that’s empowering!
Understanding your current financial situation
is a tool to embrace your wildest dreams.
Do you feel like you’re stuck where you are because of money? Like maybe it’s controlling you, rather than you controlling it? If so, let’s talk! We view money as a tool to support your dream life. Not the other way around!
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