Spring Cleaning Your Finances: Mistakes to Avoid in 2024
As the spring season arrives, it's not only the perfect time to declutter and clean your home but also an opportune moment to tidy up your finances. Just as you would organize your belongings and eliminate unnecessary items, reviewing your financial habits and goals is essential to ensure you're on the right track for the year ahead. In this article, we will discuss people's common mistakes regarding their finances and provide practical tips to avoid them.
1. Mistake #1: Budgeting for 2023—Not for 2024
One of the first steps in tidying up your finances is to review and refresh your budget. Ensuring that your budget aligns with your current financial goals and circumstances is crucial. Take a moment to reflect on this year's goals––Have your spending needs changed since 2023? Take the time to assess your income and expenses and make necessary adjustments to stay on track.
Fine-tune your budget to identify fresh opportunities and renew your motivation to stick to your plan. Use the 50/30/20 method as a general rule of thumb for your budget, refining it as necessary, with 50% for needs, 30% for wants, and 20% for savings and debt.
It is essential to set clear, realistic, and measurable financial goals for the year and break them down into smaller achievable steps. For example, if you have lingering debts from the holiday season, consider using bonuses and tax refunds to resolve them, especially potentially high-interest rate credit cards.
Seeking guidance from a financial professional, such as Financial Life Planning, can also be beneficial in creating a solid budget and financial plan.
Mistake #2. Overlooking Unnecessary Subscriptions and Expenses
Unnecessary subscriptions can quickly drain your budget without providing significant value. Take a closer look at your expenses and identify any subscriptions or recurring charges you can consolidate or eliminate.
Canceling unused or redundant subscriptions can free up funds that can be redirected toward more essential areas of your finances.
Remember to review subscriptions regularly to avoid ongoing charges from trials that have turned into forgotten, ongoing subscriptions without your knowledge. It is easy to lose track of these charges when subscribing to electronic statements rather than paper. But, by proactively managing your subscriptions, you can save money and take control of your financial well-being.
Mistake #3: Automatically Renewing Insurance
Renewing your insurance every year doesn't guarantee the same coverage. Before renewing in 2024, assess your insurance coverage and premiums.
Per CNBC, Homeowners insurance rates have dramatically risen since 2023. On average, the premium for a home with $250,000 worth of dwelling insurance has increased by 23%, incredibly high in areas of natural disasters, reaching approximately $141 per month in February 2024.
On the auto side, Forbes Advisor reports that Auto Insurance rates have soared 22% since 2023 due to higher repair costs, increased accidents, and theft, pushing the average annual cost to $2,150.
Explore bundling options and incentives from other insurance companies to lower your premiums and potentially secure new customer discounts!
Mistake #4: Losing Sight of Your Savings
Revisit your saving strategies and habits annually to ease the stress of unforeseen financial challenges. Consider setting up automatic bank transfers to deposit a set amount into your savings account weekly or monthly. There are a number of web browser add-ins that will automatically search for lower prices and find discounts. The savings can add up quickly.
Mistake #5: Closing Too Many Credit Accounts at Once
The negative impact of closing down existing credit cards lines on your FICO Credit Utilization component score is commonly misunderstood. Thus, such decisions should not be made hastily.
You should also seriously consider periodically reviewing your credit report for accuracy and scheduling free text alerts from your credit card company to monitor them and stay on top of any suspicious activity.
Mistake #6. Neglecting to Organize Financial Documents
Being organized is critical to effectively managing your finances. Take the time to gather important financial documents such as bank statements, tax returns, and insurance policies. It is essential to ensure your loved ones know how to locate and access all vital records, whether stored in a secure place like a home safe, safe deposit box at your local bank or kept secure and encrypted in the Cloud.
To make tax season less stressful, create a folder at the beginning of each year to store tax-related receipts and documents. Having all your financial documents in one place will save you time and provide peace of mind, knowing that everything is organized and easily accessible when needed.
Mistake #7. Not Appropriately Aligning Your Investment Portfolio and Forgetting About Past Employer Retirement Accounts
Ensuring that your entire investment portfolio, as a whole, has the appropriate level of diversification across different asset classes, industries, and regions that align with your short- and long-term financial goals and objectives is essential. Diversification can help reduce risk and improve returns.
Consolidating your 401(k) and IRA accounts into one or fewer places can make tracking minimum distributions and access your funds easier. Setting up automatic contributions to your investment accounts can help you stay disciplined and consistent with your investing strategy. Periodically review and rebalance your portfolio to maintain your desired asset allocation.
Mistake #8. Not Seeking Professional Financial Guidance
There is no substitute for the expertise and personalized guidance of a Certified Financial Planner (CFP) and experienced investment professional who can work with you to create a tailored plan that aligns with your goals and provides a roadmap to financial prosperity.
Consider consulting with a financial professional like Financial Life Planning who can act as your Fiduciary and trategic partner to provide valuable insights, help you navigate complex financial decisions, and offer solutions specifically tailored to your unique circumstances.
Conclusion
In addition to spring cleaning your finances, consider incorporating Financial Life Planning into your overall financial planning strategy. Financial Life Planning goes beyond traditional financial planning by considering your values, aspirations, and life goals. It is a holistic approach that aligns your financial decisions with your life vision. By integrating Financial Life Planning into your spring-cleaning routine, you can better understand your priorities and make more meaningful financial choices with our personalized financial guidance tailored to your needs.
Contact us for a free consultation if you're looking for personalized financial guidance and comprehensive solutions.
Edward C. Goldstein, CFP®, MBA, President
CERTIFIED FINANCIAL PLANNER ™ Practitioner
Financial Life Planning, LLC
10,000 Lincoln Dr. East, Suite 201
Marlton, NJ 08053
Phone: 856-988-5480
Fax: 908-292-1040
