As you shake off those winter doldrums, put away the snow boots and prepare to deep clean the house, you can add a new technique: spring cleaning your financial house.
It’s so easy for us to put our financial lives on autopilot and fail to evaluate the ways we’re spending and the products we’re using. So, once a year you should set the practice of running a financial audit to determine which products and services you no longer use or could switch to get a better rate.
To get started, you want to print out a year’s worth of bank and credit card statements. A true audit needs to be run by having all of the financial information in front of you.
Dining out during coronavirus pandemic?:Here’s what public health and food safety experts say
Audit your statements, realistically
Search for both monthly and annual fees you pay and make note of any services you no longer use. And be honest with yourself. This should be about what the real version of yourself utilizes, not the idealized version who reads The New Yorker cover to cover each week and doesn’t let it just stack up in an overwhelming pile in the corner. Do the math on how often you go to the gym vs your monthly membership fee and see if it’s still worth the cost per visit.
Nix the subscriptions and memberships that aren’t currently serving you, Next, write down ones that you use, but for which you can probably find a better deal.
Bonus points if you go through all the statements with different colored highlighters and track patterns in your spending habits. This can be especially eye opening if you’re struggling to free up money to put towards savings and/or debts.
Ditch and switch
While you have all those bank statements in front of you, it’s good to look for any recurring fees you’re getting charged by your bank. It’s 2020, there’s just no reason for you to be paying a monthly fee on your checking or savings accounts. You shouldn’t even be jumping through hoops like having a minimum daily account balance or a certain amount of monthly direct deposits.
Maybe a $12 monthly fee for checking or an $8 monthly fee for savings doesn’t sound like much, but that’s up to $240 that can easily go towards funding other goals.
Speaking of savings, that $240 should be routed to a savings account with a higher interest rate than the paltry 0.01% to 0.06% offered by many traditional brick-and-mortar banks. You can currently get 1.60% to 1.70% annual percentage yield, or APY, on a savings account.
That means if you have $1,000 in your savings account it’s the difference between two cents and $4.08 earned in interest in a year. On $10,000 that’s $1 compared to $170. It’s not get-rich-quick money, but hey, it adds up.
Internet-only banks like Ally and Capital One 360 offer more competitive checking and savings accounts. Marcus by Goldman Sachs also offers a competitive savings account.
These banks are just as safe and carry the same Federal Deposit Insurance Corp (FDIC) insurance as the brick-and-mortar banks you’re used to. The only catch is if you work in a cash-heavy job and need to be able to deposit bills. You could always use a brick-and-mortar for checking and set up a savings account with a better interest rate.
Evaluate your credit cards
Speaking of the need to potentially ditch and switch … are the credit cards in your wallet the best ones for your spending patterns?
The easiest option is a flat-rate cash back card on everything (e.g., one offering 2%), but if you’re willing to play the game a bit, you can also look for cards that offer higher cash back for the bigger line items in your budget, like groceries or gas or dining out.
Put a sticker on each card to remind you for which type of spend you should use it. This is an especially helpful practice for any cards that offer rotating cash-back categories.
Personally, when I’m not focused on racking up points for travel, I save up cash back all year to subsidize my Christmas gift budget.
You should also consider closing any cards with a steep annual fee that doesn’t actually provide benefit. A fee might make sense if it’s, say, for an airline card and you get free checked bags. You’ll likely see a short-term drop in your credit score for closing a card, but assuming you have other lines of credit (like another credit card), then you’ll rebound quickly. Anxious about closing it? Try negotiating the fee with the credit card company because they want you to keep it open, too!
Thought you didn’t need a credit score?:Here are 4 reasons why you’re wrong.
Negotiate better deals
Prepare to negotiate on everything from insurance to cable and internet to cell phone service. Shop around and see if you can get a better deal elsewhere. If you secure a better deal, then you can try to go back and negotiate with your current provider or just pull another ditch and switch.
Save your saved money!
The final step to spring cleaning your finances is to actually put all your saved money into savings! For monthly payments, like saving $20 a month by switching cable providers, you can automate an extra $20 per month to get routed into your savings account. Or apply it to any debts you’re working to pay off.
Another technique to make this more of an annual challenge is to set up a new savings account specifically for the money you save spring cleaning each year. That way you can see it really start to accumulate and even put it towards something exciting like a family trip or a splurge item you may not have otherwise purchased.
Erin Lowry is the author of “Broke Millennial Takes On Investing” and “Broke Millennial: Stop Scraping By and Get Your Financial Life Together.”