Cleaning out your closet for spring leaves you feeling organized and ready for what’s ahead. Imagine that feeling spreading to even more facets of your life after cleaning up your finances. Spring is tax season and an ideal time to evaluate where you are, consider what is important to you, and reflect on the past in order to positively move forward. By evaluating your previous habits and behaviors, you can implement small changes and stay on track toward your long-term financial goals and desires.
Here are three quick and easy ways you can approach your personal finances this spring:
1. Evaluate your spending habits
Making small changes to your spending habits can help you save in a significant way. Start by reviewing your year-end credit card summary, a simple and easily digestible place to begin. This comprehensive statement breaks down where you’re spending your money and provides an overview of your spending patterns. For example, you can quickly determine how much you’re paying on luxury treats, such as eating out or new clothing, versus necessary expenditures and savings. Identify what is important to you, and look for a few places where you’re willing to cut back. Set a budget, and stick to it.
2. Review your tax history
With tax season upon us, the thought of a tax-return check can be exciting. Meanwhile, the idea of owing additional funds can be daunting. However, it’s important to appropriately budget and anticipate for what you might owe. If you do owe taxes, consider how you are going to raise those funds and what your best options are. These may include selling securities or dipping into savings. If you receive a tax refund, consider where it’s best to invest and the types of investments you can add to or expand upon in your portfolio. For example, investing your money in a 401(k) plan instead of a regular savings account may help reduce your total taxable income for the year.
3. Reflect on your donation patterns, and be purposeful
Establishing a philanthropic legacy isn’t limited to leaving a bequest in your will or setting up a scholarship. It can start with a small, concerted effort to make a meaningful impact on the causes that truly matter to you. While there is a plethora of excellent causes to select from, it’s important to remain purposeful about the types of organizations that you’re supporting. Rather than taking a short-term approach to your philanthropic efforts and writing one-off checks sporadically throughout the year, consider what is most important to you and the legacy you want to leave behind. Establish a set amount for donations across the year, and categorize where you want various amounts to go. You can make your money go further if your employer has a matching program for donations, or be on the lookout when charities may advertise a special matching program.
Looking ahead: Considering the long-term
After making these small changes, it may be time to consider a long-term plan. Regardless of your financial goals, it’s imperative to start making changes now that will set you up for success down the line. For example, if you’re hoping to buy a house in three to five years, then curbing your debt may help increase your credit scores, which will help you get a better interest rate on a loan and get more for your money when you are ready to buy. A hot real estate market like ours is difficult to enter, with homes appreciating at a one-year rate of 9.1 percent — nearly double the national average of 4.9 percent. Being forward-thinking will help put you in the best position for making big decisions and tracking toward long-term goals.
Once you’ve outlined your goals and identified what matters to you, speaking to a financial advisor can help you in establishing a long-term plan that will set you up for success. Careful consideration of what is important to you — whether it’s buying a house in a booming market in the next few years or maintaining your current lifestyle into retirement — will help a financial advisor better assist you with wealth management and achieving your goals.