6 Ideas for Productive Financial Spring Cleaning
Spring cleaning is about more than just opening the windows and letting the fresh air in! Use the inspiration a new spring brings and dust the cobwebs from an area that may not get as much tidying as others – your finances.
1. Organize documents and receipts
One of the simplest ways to introduce more organization into your life is to sort important documents. If your documents are already well-organized in a filing cabinet, scan them and keep digital backups within quick reach if you ever need to forward them. If you decide to go mostly (or entirely) digital, keep backups in multiple locations, like a flash drive or the cloud.
File important receipts alongside instruction manuals, proof of purchase, warranty information, and other relevant loose items. Creating a physical binder alongside digital backups of these documents is a great way to keep originals intact.
2. Review insurance policies
It’s a good idea to review your health, life, auto, home, and other insurance policies at least once or twice a year. If you have questions about your coverage, it’s best to ask before there’s an incident.
Your insurance requirements may need adjustment as your family and health status change over the years. Plan ahead to avoid gaps in coverage and research alternative insurance options beyond employer-based insurance plans. Reviewing your insurance policies can help keep your level of coverage best fitting for your needs and budget.
3. Review your credit score
The Fair Credit Reporting Act (FCRA) is a federal law that protects the information in your consumer report. The FCRA allows you to obtain a free copy of your credit report from each of the major credit bureaus annually and dispute any incomplete or inaccurate information. By choosing to obtain one of these reports at a time, you can obtain a free credit report three times annually.
Catching a mistake and allowing time to fix it is better than missing out on a loan or receiving a higher rate because of an error on your credit report. Your credit is used for more than just applying for loans. Landlords, insurance companies, or prospective employers may check your credit report to determine your creditworthiness and financial risk factor.
During the coronavirus pandemic, the three major credit bureaus – Equifax, Experian and TransUnion – recognized the importance of access to credit, and now allow you to request free weekly credit reports. While these free reports do not include credit scores, they are a useful tool to monitor your credit history for irregular activity.
- How Young Adults Can Build Credit
- Help: I’ve Been Denied for a Loan!
- Frequently Asked Questions About FICO® Scores
4. Unsubscribe from extra services
Avoid paying for more than you have to each month by making a list of your current subscriptions. Television, music, auto-ship, delivery, mystery boxes, and more can quickly add up. If you find that you’re not using your services as much as you used to, put them on a temporary hold and see how much you miss them. If the hold comes to an end and you didn’t even notice you were without it, it’s time to cut the cord.
Visit our DIY Guide to Unsubscribing and Saving for more tips and tricks.
5. Refresh your budget
The best budgets are ones that you can follow and stick to over a lengthy period of time. Still, even the best budgets need modifying at least once annually. Task yourself with saving additional funds per month or add in new frequent expenses that didn’t exist when your last budget was created.
If adhering to your budget is a challenge, analyze where things went astray and try to remedy them going forward. Ask yourself these questions:
- Is my budget too strict, too lenient, or just right?
- Am I including all my recurring expenses each month?
- Do I include saving into my budget?
- Is my budget a rule or more of a suggestion when it comes to saving?
- How do I account for fluctuating expenses, such as heating or electricity bills?
6. Adjust your tax withholding
If you owed in the last year or perhaps want a smaller tax return and more in your paychecks, work with a tax advisor to make the proper adjustments.
Tax rules and deductions went through some significant changes in 2020. The IRS website details what’s new for filing taxes in 2021, but here are some highlights:
- Last year’s federal stimulus checks do not count as earned income, so you will not owe taxes on these economic impact payments, which are considered a tax credit for 2020.
- If you’re self-employed, you can claim a home office deduction, but if you’re a regular employee who’s been working from home due to COVID-19, that is not allowed.
- If you received unemployment benefits in 2020, you will need to pay federal income taxes on that money (though some states, including Pennsylvania and New Jersey, don’t tax unemployment benefits).
- Eligible individuals and families with low to moderate income may be able to claim the Earned Income Tax Credit. Eligible taxpayers have the option to calculate their EITC based on their 2019 income if that was higher than their 2020 income.
- Most families can claim up to $2,000 per qualified child with the child tax credit.
- Thanks to last year’s Coronavirus Aid, Relief, and Economic Security (CARES) Act, people who itemize their deductions can deduct up to 100% of their adjusted gross income on qualified charitable donations. Additionally, a special provision allows tax filers who take the standard deduction – that is, do not itemize – to deduct up to $300 made in qualified cash donations to charity last year.
- If itemizing deductions, you can deduct the amount of your total medical expenses that is above 7.5% of your adjusted gross income.