Cleaning up your finances will help you to weed out some of the unwanted elements, sort things out and keep on track with respect to your financial goals. It is recommended that you carry out the process under guidance of your financial planner or read this site more frequently.
Clean up your financial habits: The first step is cleaning up your financial habits. “It is easier not to track your expenses, not to be careful with investments, and not spending enough time with your hard earned money. However easy does not work always,” says Chenthil Iyer, Chief Strategist, Personal Finance, Horus Financial Consultants. So if you are not already doing it, prepare a clear budget and stick to it, cut down on expenses that can be avoided, control your credit card spends, manage your cash flows and try to save and invest more money.
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Sort out your documents: Check all your financial documents. Most of the documents can be stored in the digital form while for others you need to keep a hard copy. If you have not done it already, opt for e-statements of your statements and bills. Keep your documents in separate files so that it is easy to locate them. Over time, a lot of unnecessary papers can clutter your desk, so shred documents you do not need.
Consolidate your accounts: Many of us end up having too many bank accounts or credit cards which we have taken due to some attractive offer, which make it difficult to track and maintain all of them. Take a look at your bank accounts and consolidate them where possible. If you have too many credit cards, you may consolidate all of the balances on the card with the lowest interest rate and discontinue use of some of your credit cards. This will mean that managing your accounts and cards will become less hassle free in the future.
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Insurance checkup: Review your insurance policies. “The first thing to clean up from one’s financial portfolio is the bunch of inefficient insurance policies that are obligatorily sold to you by your insurance agent friend or close relative. However, you may do so only after buying yourself the appropriate amount of pure term insurance,” says Iyer. Of course this decision will depend on the policy term, premiums paid and other factors. “Look at any change in responsibilities or family profile and renew or add on relevant insurance,” says Manikaran Singhal, founder and chief financial planner, Good Moneying Financial Solutions. You also need to have an idea of when these policies need to be renewed, so that you have sufficient funds to pay your premiums.
Review your investments: Spring cleaning is also a good time to review your investment portfolio. A lot of us may have done investment in the initial years to save on taxes and some of these may not make sense now. You may need to modify, add or discontinue funds from your mutual fund portfolio based on performance and diversification needs and how your long term goals are shaping up. “The components of the investment portfolio such as shares, mutual funds (debt and equity), gold etc should be reviewed, cleaned up or replaced once every 2-3 years as the efficiency of the assets generally wane away once the market discovers its value,” says Iyer.
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