How to spring clean your finances
Warmer temperatures make it a good time to thaw out and soak up some much-needed vitamin D. Why not use the subsequent energy boost to tidy up your personal finances? Performing some financial spring cleaning can help you avoid making a mess of your fiscal affairs down the road. Here鈥檚 where to get started.
Revamp your budget
Living within your means is an integral part of a healthy financial lifestyle. But we鈥檙e all human, and those new kicks you spotted at the mall or that popular restaurant down the street can make it difficult to stay faithful to your budget.
鈥淓verything in your financial life flows from your ability to effectively manage and allocate your income,鈥� says Carrie Houchins-Witt, a financial advisor in Coralville, Iowa.
She recommends that you review last year鈥檚 spending transgressions. Then for this year. 聽That may mean zeroing in on and consequently reducing purchases in a given spending category, such as going out to eat.
Tweak your investments
As important as it is to track current spending habits, make sure also to review the investment allocations in your retirement account and other long-term savings. This spring, adjust the mix if what you hold no longer gels with your overarching financial goals.
鈥淲e are all so busy and 鈥� especially for the index-fund investor who relies on the simplicity of this kind of strategy 鈥� it鈥檚 easy to forget that we need to perform periodic maintenance to ensure our investment allocations have not grown out of whack over the last year,鈥� Houchins-Witt says.
Financial advisor Mathew Dahlberg recommends rebalancing your portfolio.
鈥淩egularly rebalancing a portfolio can add a few percentage points to long-term returns,鈥� says Dahlberg, of Kansas City, Missouri. He recommends using rebalancing tools offered by major online brokerages or just crunching the numbers yourself.
Ramp up retirement contributions
Boost your retirement savings this spring by setting up a monthly transfer from your checking account into a retirement fund. Contributing to a traditional individual retirement arrangement, or IRA, before the tax filing deadline may reduce your previous year鈥檚 taxable income. But consider making regular contributions throughout the year 鈥� it can take some of the guesswork out of investing the money.
Such dollar-cost averaging 鈥� or contributing in smaller, regular amounts to minimize risk 鈥� 鈥渇orces you to buy at all price points and, therefore, takes the guesswork out of trying to find the right time鈥� to get in the market, says Johanna Fox Turner, a financial advisor in Mayfield, Kentucky. 鈥淭his also gives your money more time to grow than the lump-sum deposit on April 15.鈥�
Adjust your withholding
Receiving a big tax refund isn鈥檛 necessarily a good thing. The average federal refund of about $3,000 could, if eliminated, put $250 a month in a taxpayer鈥檚 savings account. If you received or are expecting a large check from the government in coming weeks, it may pay off to adjust your withholding on your W-4 form before next year鈥檚 tax season.
鈥淲hile you might love getting a huge tax refund, you should consider the potential income you are losing by giving Uncle Sam that interest-free loan,鈥� Houchins-Witt says. 鈥淚f you decrease your withholding to the amount necessary to pay your tax bill, you won鈥檛 get a huge refund next year, but you鈥檒l have immediate access to money that could be put toward your 401(k) or college savings accounts.鈥�
Houchins-Witt recommends working with a tax preparer to help determine how to revise your withholding so you don鈥檛 have too little taken out of your paycheck for the rest of this year.
Still, many people appreciate聽the forced savings element of a bigger tax refund. If you鈥檙e one of them, have 聽that gives you the greatest benefit in the long run. It鈥檚 not found money 鈥� it鈥檚 part of your paycheck and should be treated as such.
The takeaway
Be it tweaking your budget or adjusting your withholding amount, there are plenty of ways to get organized this spring. No matter how minor a certain tuneup item may seem 鈥� like cutting back on movies or brewing your own coffee 鈥� you鈥檒l be doing yourself a favor by putting the savings toward your future.
Tony Armstrong is a staff writer covering personal finance for . Follow him on Twitter and on. This article first appeared in .
