How to spring clean your finances
Monday, 12 April 2021
Spring is the traditional time to scrub up your surroundings and get things organized.
This new season, as we look to move beyond the negative effects of the pandemic, many of us may have our homes in order — but our finances may need some scrubbing.
According to a Pew Research survey, about half of working adults say the economic impact of the pandemic will make it harder for them to achieve their long-term financial goals. More specifically, 44 percent estimate it will take them three years or more to get back to where they were a year ago. Among those who are usually able to put some money in savings, 31 percent say they've had less available to save since the pandemic hit, the survey shows. And of the more than 44 percent who have lost a job or taken a pay cut during the pandemic, 38 percent have taken on more debt to make ends meet.
Whether you've used up your emergency savings, taken on credit card debt or just spent too much on food delivery, a financial spring cleaning routine can help get you back on track. Start with these steps for a fresh financial restart.
Clean up your credit report
Take time to check your current credit report. You can access it once a year at no charge and with no impact to your credit score by visiting AnnualCreditReport.com. Examine the personal information, credit accounts and credit inquiries and look for errors. If the report says you've made late payments but you've always paid on time, that error should be corrected. Same if it includes addresses where you've never lived or names and birth dates that aren't yours. You'll need to dispute any errors by reaching out to the individual financial institutions, or sending a letter to the credit reporting agency that generated it.
Also, take a look at your credit score. If you've had to use credit cards or other debt to manage through the pandemic, your score may be lower. That's OK — you can work to raise it. But it's important to know what your score is now so you can track progress.
Recommit to your savings goals
If you're one of the many who have been unable to save much over the past year, reexamine your savings goals. You may need to reduce your monthly savings amounts or add some extra time to reach your goal, but don't give up.
Include savings as part of your monthly budget so it will be a predictable expense. Consider making savings automatic by sending a portion of each paycheck straight to savings.
Freshen your budget
It's a good idea to revisit your budget on an annual basis anyway, but this year, doing so may be especially important. For example, has your income dropped? Have you taken on new debt that you need to pay off? Do you need to replenish your emergency savings fund? All those are reasons to tweak your budget.
Go through your budget one item at a time, and look for opportunities to make cuts. Maybe you've grown accustomed to cooking at home more during the pandemic and you can cut back on dining out, or perhaps you're working from home and won't need to spend as much on clothing and haircuts.
If you have important financial goals to meet — such as saving more and paying off debt — your willingness to make sacrifices now will pay off in the long term.
Devise a debt payoff plan
Maintaining unsecured debt will require you to pay high interest rates and make it harder for you to reach your financial goals. If you're carrying extra debt, make a plan for paying it off. That could mean focusing on the smallest debt first and paying as much as possible on it until it's paid off, while making minimum payments on everything else. After paying off one debt, move to the next one.
Another option could be consolidating your consumer debts into one low-interest loan, such as a home equity loan or a credit card with a low or zero percent introductory rate. Adjust your budget to focus on paying it down as quickly as possible, and avoid adding any more debt.
The content provided is for informational purposes only. Neither BBVA USA, nor any of its affiliates, is providing legal, tax, or investment advice. You should consult your legal, tax, or financial consultant about your personal situation. Opinions expressed are those of the author(s) and do not necessarily represent the opinions of BBVA USA or any of its affiliates.
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