Personal Finance

What Does Cleaning Money Mean

By David Krug David Krug is the CEO & President of Bankovia. He's a lifelong expat who has lived in the Philippines, Mexico, Thailand, and Colombia. When he's not reading about cryptocurrencies, he's researching the latest personal finance software. 13 minute read

Creating financial security does not occur automatically. Actually, the reverse is true.
Planning ahead and being self-disciplined are essential if you want to achieve the lifestyle of your dreams. Just like a dirty house won’t clean itself, unattended cash eventually succumbs to entropy and disorder.

In the same way that you give your house a deep cleaning every spring, you should also give your bank account a thorough cleaning every spring.

Spring Cleaning Your Finances

Take some time on the weekend to organize your money and make a strategy to finish the year stronger financially than you did at its beginning.

  1. Clean Out Your Old Stuff Literally

It’s possible to clean your home and your finances all at once. Nowadays, people tend to amass excessive amounts of possessions. As a result, our houses quickly get cluttered, despite our best efforts at maintaining order.

Put an end to futile shifting and start clearing the clutter. Check every nook and cranny, including the closets and the attic. Whatever you’re not sure what to do with, get rid of it, list it on Decluttr, or donate it to someone who would appreciate it. Having trouble finding a use for your unused iPhone? Give them to SellCell and get paid in cash.

If you’re getting rid of things, sort them into three piles: sell, donate, and trash. Astoundingly, people will buy almost anything. You can make money off of your kids’ outgrown clothes, furniture, gadgets, and more. You may recoup part of your investment by selling them on websites like Craigslist, eBay, and Etsy.

Donate to a good cause everything you can’t sell. Donate your gently used items, such as clothing, furniture, and even outdated technology. Whatever you can’t sell, try to give away. Your garbage heap ought to be the smallest of the three.

Please save your gift receipts in the event that you need to take a tax write-off for your generosity. When filing your taxes, you’ll need to itemize each of these deductions.

  1. Sort Through Your Paperwork

I, like the average American, used to keep my most critical papers in a cumbersome file cabinet. Then, around five years ago, I had to get rid of it since I was moving abroad.

These days, I only use digital storage for my most crucial records. I use a combination of an automatic cloud backup service that continuously uploads my files to a secure off-site location and an external hard drive that I maintain at my apartment to ensure that my data is safe. Despite the fact that I have spilled water on my laptop, I will not lose any of my important files.

Make the switch to digital file storage to save space and stay more organized. If you don’t have a scanner on hand, borrowing one or renting one might help ease the changeover. 

Keep irreplaceable originals of papers in a fireproof, portable safe. You shouldn’t bother keeping a physical copy of anything unless you consider it important enough to warrant housing in a fireproof safe.

Finally, to avoid identity theft, destroy any financial or personal papers that you trash. Shredding services are provided by several financial institutions and delivery companies such as FedEx. A personal paper shredder may be purchased on Amazon for less than $50.

  1. Set (or monitor) financial goals for the year.

After you have a firm grasp on your ultimate financial objectives, you may move backward to establish shorter-term, annual targets. As an illustration, I have set goals for my net worth and passive income by the end of this year, with the ultimate goal of achieving financial independence in the following five years.

Review your individual aspirations. Have you been able to save as much as you’d want for a rainy day? Do you have outstanding credit card bills for which you are being charged exorbitant interest rates? When it comes to tax-deferred retirement accounts, are you contributing as much as you’d like to?

During your annual round of fiscal housecleaning, you should take stock of your progress. You have some leeway to make the necessary adjustments to your current spending, savings, and investment strategies to ensure that you achieve your short-term goals by the end of the year.

One way the rich think differently about money is by setting long-term objectives and then working backward to achieve those objectives. The middle class prioritizes short-term ease above the long-term goal of crafting the ideal existence.

Your immediate monthly budget may be reevaluated to ensure it supports your goals once you have created and reviewed your long-term, intermediate-term, and short-term plans.

  1. Examine Your Monthly Budget

The term “budget” is probably the most dreaded in the English language. In an instant, it prompts them to consider making sacrifices and giving up their current way of life.

Nonetheless, there is more than one approach to budgeting than that. In the end, accumulating riches is an inconvenience. The result would be reduced consumption and increased savings.

When planning my finances, I use a lifestyle-oriented approach since I place a premium on things like frequent foreign travel, passive income, and the freedom to move around on foot or bike. Having a large home and plenty of possessions isn’t something that interests me very much. My wife’s company provides us with a free apartment, and we made sure to move to a place where we wouldn’t need a car if we were to remain there for an extended period of time.

The way you budget has to be rethought. Instead of focusing on giving up something you care about, figure out what matters most to you and work backwards to create the ideal life for yourself. If you save $500 or $1,000 every month, for instance, you might purchase a house in one year instead of waiting the typical two years to save for a down payment.

Which brings us back to the concept of priorities. Rather than saving for a down payment, would you rather spend $100 a month on cable TV? The same may be said about spending money on things like going out to restaurants, buying new clothes, or technological equipment. Check even the “essential” purchases for waste and fraud. Ask any home hacker *whether it’s necessary to pay rent.

  1. Cancel Unused or Extraneous Subscriptions

A $100 monthly cable TV bill is possible. The alternative is to pay ten dollars a month for a service like Hulu, Disney+, or Netflix. Less visible subscriptions, however, are the ones that lead most Americans into legal trouble. In just two minutes, you can improve your health with this simple routine.

In this section, please detail all of the recurring charges you make on a regular basis, such as those for video and music streaming, gym memberships, box subscriptions, landlines, antivirus software, and hard drive backup services. I would guess that the actual cost is far more.

You may either manually compile a list as Truebill does, or utilize an automated program. These programs provide a safe and convenient way to keep track of recurring expenditures by syncing with your bank and credit card.

After compiling a list of your subscriptions, you may use this question as a litmus test: how often do I use this subscription, and does it improve my life in a meaningful way?

If you’ve gone to the gym 10 times in the past month, for example, that’s probably enough to warrant continuing your membership. Cancel your subscription and start working out at home if you’ve only been there twice. Several credible, no-cost options are available for accessing high-quality training videos online.

  1. Plan and budget for the remainder of this year’s irregular expenses.

Most people’s budgets have a hornet’s nest of unplanned costs. No one ever fails to set aside enough money to cover their monthly mortgage or rent. However, most individuals fail to account for gifts on important occasions like weddings, birthdays, showers, and holidays.

These costs may not be recurring, but that doesn’t make them any less of a burden on your finances. CIT Bank offers a high-yield savings account, which is a good place to stash away some cash. Then, set aside this money specifically for unforeseen costs.

Consider including travel costs in your budget. There is a good chance that you will take a trip or two this year. Think ahead about how much you’d want to spend on these and other unexpected costs for the remainder of the year, and put that much money away.

  1. Make Provisions for Retirement Contributions

Now is the time to plot out how you’ll reach your retirement savings goals for the year, whether you want to put away the maximum amount in an IRA or 401(k) or merely take advantage of matching contributions. These donations don’t appear out of thin air; you’ll need to set aside money for them.

Tell the people in charge of payroll contributions to your company’s retirement plan that you’d want to have a larger portion of your income sent in each month.

Be aware that there may be paperwork or a specific procedure you need to complete in order to increase your contributions formally. It’s possible to have your IRA direct deposit go to both your checking and IRA accounts. Make your contribution (of whatever amount you decide) the first thing deducted from your paycheck. That way, you won’t forget about it.

  1. If necessary, adjust your tax withholding.

Your tax withholding may need to be adjusted if you received a refund or owing money to the Internal Revenue Service last year.

If you withhold too much money from your paycheck, you’ll essentially be giving Uncle Sam a loan with no interest. If you don’t withhold enough money, the IRS will penalize you.

To avoid owing any money to the government on April 15, you should work with your employer to ensure that your income tax withholding is set up properly. Talking to a tax expert might be quite beneficial.

  1. Examine Your Life and Health Insurance Policies

Your needs for both medical and life insurance will change as you become older. There is a greater requirement for life insurance for a person with a family than for someone who is single and childless. Do your homework before talking to a life insurance salesman so you know how much coverage you need, if any.

Haven Life offers online life insurance quotes if you’d rather not speak to a sales representative. Your application and quote will take no more than a few minutes total.
It’s the same with health coverage; there are different requirements at certain points in your life. If your work doesn’t offer health insurance, you can choose from a variety of individual plans.

If you want to get the finest health insurance plan that fits your needs, money, and location, you’ll need to go outside the box. This means not discounting association health plans or the public ACA marketplaces. Consider eHealthInsurance for short-term health insurance needs to fill coverage gaps.

In addition to a high-deductible health insurance plan, you may want to consider creating a health savings account (HSA) with Lively. As if the cheap premiums weren’t enough, an HSA also offers a rare triple tax advantage.

  1. Make Your Savings Automatic

Direct deposits can be automatically increased by having a portion of each payment deposited into a savings or investment account in addition to a checking account. Nonetheless, that is not your only choice.

Automatic transfers can be scheduled to be made on a regular basis, such as on your payday. If you want to pay off your mortgage faster, you may, for instance, set up automatic payments to be sent each month and pay more than the minimum required.

There are other applications like Acorns that may help you save your spare change automatically. Additionally, certain web-based banking platforms, such as Chime, offer round-up features on purchases.

By setting up systems that make it easy to do good things, like save money, you can make sure they actually happen. In addition, setting up an automatic savings plan is a terrific method to “trick” yourself into saving more money by removing the temptation to spend. In response to the siren song of a diminished bank balance, you learn to live on less.

  1. Make Your Investments Automatic

Some investors can’t help but spend hours poring through financial reports and making stock selections. The activity fascinates them, so they pursue it as a pastime. And I certainly don’t count myself among those financiers. And you probably aren’t either.

Investors in the 20th century had just two options: pay a little fortune on a mutual fund manager or choose equities themselves. Thankfully, that was then and this is now.
Investors may now pick from hundreds of superior low-cost index products. Moreover, there are a plethora of excellent robo-advisors, such as Acorns and Betterment, available to take care of their assets on their behalf. Quite a few of them won’t even cost you anything.

To handle my investments, I utilize Schwab Intelligent Portfolios, which costs me nothing as long as I keep at least $5,000 in their custody. The account allows for biweekly or monthly recurring deposits at the request of the account holder. You just give them the green light to begin investing on your behalf based on an asset allocation proposal they make depending on your needs.

Aside from stocks and bonds, other investment vehicles can also be managed mechanically. In an effort to spread out my real estate holdings, I made a small test investment in Fundrise’s private REIT. Like other real estate crowdfunding platforms, they allow for automatic periodic investments.

  1. Examine Your Asset Allocation

The optimal asset distribution for you will evolve over time. Avoid the danger of a disastrous sequence of returns by gradually reducing your stock holdings as your retirement date approaches. Substitute them with safer, higher-yielding options like bonds and low-risk real estate.

As time passes and certain assets in your portfolio outperform others, your asset allocation will naturally shift. Even if you have no intention of altering your target asset allocation, you should nevertheless do frequent portfolio reviews to ensure that your investments are still in line with your goals.

Periodic rebalancing is recommended even within asset types. Your portfolio is out of whack if, say, foreign stocks have beaten domestic stocks over the past 12 months. Now that a sizable portion of your stock holdings are invested abroad, your portfolio will suffer.

You have to sell high and buy cheap when you rebalance. Additionally, it ensures that your asset allocation is reasonable given your age, objectives, and comfort level with risk.

Take, for example, a portfolio that aims to have 50% U.S. equities, 30% worldwide developed countries, and 20% emerging markets. The next year is a disaster for U.S. equities while those in emerging markets soar. Because of this, your asset allocation is incorrect. The strategy involves selling certain developing market equities at a high price and buying U.S. stocks at a cheap price.

Hire an investment adviser or sign up for a robo-advisor if you don’t want to manage your own asset allocation and portfolio rebalancing. They’ll provide you advice on the best asset allocation strategy, taking into account your age, financial goals, and risk tolerance. The portfolio is automatically rebalanced after you agree to the suggested allocation.

  1. Create a Basic Monthly System for Tracking Key Figures

It’s easy to develop an unhealthy obsession with your finances, a la Scrooge McDuck and his gold money. However, the majority of Americans suffer from the opposite issue: they don’t pay close enough attention.

In business, there is a proverb that goes something like, “What gets measured, gets done.” In practice, this means focusing on the highest-value activities and metrics of success.

So that I could easily keep tabs on my monthly financial development, I decided to make a very basic spreadsheet. If it took more than five minutes, I would just forget about it. Thus, I began by selecting only three figures: the savings rate, the investable net worth, and the FI ratio (financial independence ratio or FIRE ratio).

How much of your monthly net income is set aside for savings each month is your savings rate. A savings rate of 20% would be achieved by putting away 20% of a monthly income of $5,000, or $1,000. The rate at which you save money is directly proportional to your rate of wealth accumulation.

You have a positive net worth if the value of your assets exceeds the value of your obligations. Every month, you won’t have to do the math on your own. Get yourself a free program like or Personal Capital to keep tabs on your finances.

At the end of the day, your FI ratio is the percentage of your monthly living expenditures that you can meet with passive income from assets. Having a FI ratio of 25% means you can retire on $4,000 per month if you also receive $1,000 per month in passive income. The sooner you can achieve financial independence, the greater your FI ratio should be.

Make your own method to record monthly updates to your most important financial metrics, and keep the amount of time spent on this task to a minimum.

  1. Examine your credit report for mistakes.

Credit reporting agencies frequently make errors. One in five Americans has inaccurate information on their credit record, said the Consumer Financial Protection Bureau. To your relief, each of the three major credit agencies allows you one free credit report review every year.

If you want to catch any mistakes in your report, now is the time to do your financial spring cleaning. Disputes on credit reports are easy to handle if you discover any discrepancies. You won’t have to spend any money or time on it.

As soon as you’ve corrected any mistakes, it’s a good idea to enroll in a free credit monitoring program like Credit Karma. In addition to keeping you abreast of any shifts in your credit scores, they will also sound the alarm if they detect any unusual activity that may point to identity theft.

Bottom Line

It’s not by chance that one has a spotless house and a healthy bank account. In other words, you have to actively seek them out to experience them. Your requirements will evolve as you work toward various intermediate and long-term objectives. Long-term objectives may require reevaluation to ensure they still accurately depict your ideal existence.

Plan to examine your financial situation and make any required adjustments in spring. When I started paying attention to those three financial metrics on a monthly basis, my whole world shifted. Even if you only practice what I’ve outlined above once a year, you’ll be far ahead of the majority of people who go through life just going with the flow.

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