As we collectively distance ourselves from a forgettable 2020, many of us made resolutions for 2021 on the very first day of the year. And while some may have been going strong, most resolutions only last into the first few weeks of February.
As a result, we have another chance to do good as winter thaws out — spring cleaning! We usually associate spring cleaning with clearing out old items in your house that are unnecessary to make room for the new. With tax season upon us, this is also an amazing time to take care of your financial house and clean out unnecessary expenses in your budget.
So how do you start? Reviewing a budget (and sticking to it) can be a daunting task for anyone. Instead of looking at what you will spend, start with what you did spend in a few easy steps:
Budget Review Steps
Step 1: Consolidate your Expenses
To get started, pull together any and all ways you spend money. This can be pulled from bank statements, credit card statements, and other receipts. Using the last few months of spending should work fine. Pull it all in one list, either electronically or on a plain piece of paper.
Step 2: Highlight your Needs
Grab a highlighter and mark off the things that you need on your budget every month. These are necessary expenses like rent, utilities, car payments, phones, loan payments, food, and other things that you cannot live without. Separating needs from wants can be challenging but establishing your needs will give you a foundation for your budget.
Step 3: Clean up your Unnecessary Expenses
You should now have a good idea of the items ready for spring cleaning! This step is very crucial to maximize what you have so you can save more or spend it on things that will bring value to your life. At this point, when you review this list, you’ll have the ability to eliminate, trade, or become more efficient and get things you really want.
Finding unnecessary expenses becomes an easy process once you have your list. Here are some specific examples that may sound familiar to you when you look at these expenses more closely.
Unsubscribe and Reduce the Stream
It wasn’t too long ago that the mantra of “cut the cord” was uttered as consumers moved from cable to streaming services like Netflix and YouTube TV as examples. Ordinarily, reducing this bill is fantastic, but then in 2020, as the pandemic hit, many streaming services became a source of entertainment for everyone. Ask yourself if you still use them regularly and which ones you can live without. This also applies to memberships you may not be using as frequently, like having Spotify, Apple Music, Prime Music, Pandora, and Sirius XM!
For the most part, anything recurring and automatic should be reviewed. The small $10-$20 expenses may seem small but consolidate a few services, and the dollars can add up. Are all of the food delivery subscriptions still needed?
Most bank accounts pay very little interest anymore due to the current economic environment. Bank fees may not appear to be uber expensive, but with the number of options out there for online banking, make sure you are not paying fees that may be avoided elsewhere. One common one to look out for is the overdraft fee. Most banks will offer solutions to avoid these, but you will need to ask.
Cell Phone Plans
There was a time where cell phones were considered to be a luxury item, but in 2021, they are a necessity for most. Of course, the cell phone payment plan allows you to get the latest and greatest phone every year or two. A good strategy would be to pay for your phone up front and avoid taking on a monthly bill for a device you don’t need. The phone functionality will last a few more years than you think for most of what is needed.
Credit Card Fees
Chances are that extra fee you pay for one or more of your credit cards made sense to get the points and use the travel benefits. Travel may have slowed in most cases this past year; however, the fees continue to roll in. This would be a great time to see if that fee is worth it and if it is, whether you have the best card for the benefits you want.
High rates can be a great source to clean up your budget and get extra credit when you are spring cleaning. This is a time to look at your insurance rate and interest rates. In many cases, shopping your insurance can save hundreds of dollars per year. Carriers change rates and sometimes want more customers in your area or demographic and may be willing to offer lower rates. It is always worth it to check the market if only to confirm that you have a great rate already.
Finally, one of the biggest unnecessary expenses that can have a long-lasting impact is cleaning up high credit card rates and mortgage rates. This can be achieved by reducing rates, paying off high rate cards, or consolidating your debt. Pulling a credit report can help review what is outstanding and allow you to clean up your credit report if needed. The major credit rating agencies will supply at least one report per year for your review and at no cost.
To summarize, cleaning anything is no picnic, but spring cleaning your budget and removing unnecessary expenses and fees can let you keep more of your money and give you choices to spend and save on the things that really matter.