Spring is just around the corner. As you get ready to start your spring cleaning, don’t forget to give your finances a good dusting, too! A lot can change in even just a few months, especially your finances.
Here are four things you should do to clean up your finances this spring and a breakdown of how to do them.
Prepare for Tax Season
The best way to prepare for tax season is to start early; April always seems to roll around before you know it. You need to make sure you have all the necessary paperwork, form a plan for filing, and max out any tax-saving contributions. Here are three simple steps to get you ready for tax season.
Gather the necessary paperwork
The first thing you need to do is ensure that you have all the required forms. Everyone’s financial situation is different, but the basic forms include W-2, 1098 (for mortgage interest), 1099-INT or 1099-DIV. These forms prove what income you earned from sources such as wages, interest, or investment income. Employers will send you W-2 or 1099 forms, and you can get 1099-INT and 1099-DIV forms from your financial institution. Remember, if you purchased health coverage from the Health Marketplace, you also need a 1095-A to determine your premium tax credit.
The IRS requires that financial institutions send out most 1099s by January 31, but for some forms, the institution has until February 15. However, brokerage firms have the option to file an extension until March 15 to avoid making mistakes and needing to issue corrected documents. If you use a brokerage account to invest, you may not get all your documents until mid-March.
Looking for the 1099-INT in your Milli account? Open the app, click into your profile, select “Statements and Docs,” and from there select “1099 Forms.”
Max out any contributions
If you have any tax-deferred accounts, such as an individual retirement account or a health savings account (HSA), you can make contributions for the previous year up until Tax Day of the following year. In addition to putting more money into your account, these contributions also help lower your taxable income, thus lowering your expected annual tax contribution. You can contribute a certain amount each year without paying taxes depending on the account.
Contribution limits vary by age and year of contribution. To see what your maximum contribution is, check out these resources from the IRS.
Decide how to file
The availability and accessibility of tax preparation software make filing a return pretty painless these days. And if you make below a certain income, the IRS will even let you file your federal return for free.
However, if you have a large portfolio of investments, are self-employed, or have experienced a major life change, like marriage, divorce or buying a home, your taxes will be much more complex. You may want to consider using a professional tax service instead to ensure everything is accurate and you don’t get an unexpected bill from the IRS. Remember that this is the peak season for tax preparers, so you need to sign up sooner rather than later.
Revisit Your Budget and Goals
It’s good practice to check in with your budget and financial goals throughout the year to track your progress and make any necessary adjustments. You may find that you budgeted more than you need in some areas or that the financial goals you set awhile back no longer match your current needs.
Here is a process to follow to revisit your budget:
List any new expenses
Did your best childhood friend announce a destination wedding later in the year? Did your kid hear about a cool summer camp and now they’re begging to go? Did your spouse find out they need to have an unexpected surgery?
Life is full of surprises. It is impossible to plan for them all, but you can adjust to reflect your changing needs. Before reviewing your budget, list any new expenses that you will need to account for this year.
Reassess your budget
We all need to adjust our budgets over time to reflect our current financial situation. Perhaps your income or cost of living has adjusted since the last time you worked out your budget, such as if you got a pay raise or have experienced the cost of groceries rising. Plug in the new income and expense numbers and ensure you have enough money allocated to each budget category.
Compare your current spending and savings to what you’ve budgeted for. Make a note of areas where you consistently spend more or less than what you allocated in your budget
, and see if you need to adjust percentages or have extra money you could save.
Bonus tip: In your Milli account, be sure to check out the “Purchases under $10” section in the app – for many, it’s small purchases that add up and eat away at the budget.
For all categories of spending, ask yourself the following:
- Is this an area of immediate need? (If so, make that a priority in your budget)
- Could you reduce any discretionary spending to make up for any areas in which you spent more than you budgeted?
- Are there any areas of consistent underspending you could adjust to put the excess toward this expense?
Don’t forget to account for those new expenses that have popped up. To the best of your ability, break down the cost of those new expenses that are on the horizon, and allocate funds to save up. For example, if the destination wedding is 11 months from now, and you know you can book the flight and hotel three months in advance, you have eight months to save up. Try to estimate the total amount it’ll cost, and divide by eight. If you have the room in your budget to set that amount aside each month, do so. If you don’t, see what other adjustments you can make. Either way, create a Jar in Milli and start contributing to it so you can set yourself up with the funds to handle those impending future purchases.
Revisit your financial goals
Now it’s time to see how your budget will align with your goals. Are you able to stick to your budget? Are you on track to meet any savings or investment goals?
Even if you’re right on track with plans, looking things over with a fresh pair of eyes never hurts. Perhaps if you have extra room in your budget, you can set a new goal or increase the amount you’re putting toward other goals.
If you’re falling behind your goals or haven’t stuck to your budget, this does not make you a failure! It just means you need to adjust. Remember, a smart financial plan should remain flexible and adapt to your life’s circumstances. Finances are a continuous act of tweaking and balancing resources. If you have a dramatic misalignment of your budget and your goals, it may be worth looking at ways to increase your income to better meet your needs.
Organize and declutter your records
Keeping track of your finances is a lot easier with an organization system in place. We’re all busy and that can lead to a lack of a comprehensive financial organization system. It’s all too easy to stash the W-2 in a random drawer and save your tax return with an unclear file name to a random folder on your computer to deal with later.
So, take some time to set up an organized record keeping system. If you already have one, take a few minutes to ensure any new files are in their proper place.
Gather your records
Whether you still get bank statements in the mail or keep your records online, it’s important to keep things organized no matter what medium they’re in. Gather everything from this year so far and label it, whether in an accordion folder in your office or a folder on your desktop. Drop everything important in there – payment stubs, bills, statements, receipts, completed tax returns. Organize it into categories or months if that makes things easier for you. Not only will this help with next year’s taxes, but it will also make checking in with your budget much easier moving forward.
While gathering your new documents, be sure to shred and toss out or delete the old ones if they are no longer needed. You can check this guide from the IRS detailing how long you should keep records to help you sort through what is or isn’t needed.
Clear out the spending clutter
Another bit of spring cleaning is to stay on top of any accounts you have open at businesses or services that could cost you money. Go through your online accounts and make a list. If you’ve forgotten the password, reset it and get back into the account. If you use a password manager (even the one built into your web browser), that can help you track which accounts you have.
Review if you have any subscriptions you need to cancel, free trials you need to cancel before they start charging, or perhaps any rewards points you forgot about and can redeem to save money. If there is a store you no longer shop with, or a service you aren’t using, close the account. It’s a best practice for online security to have as few accounts as possible in case their systems are compromised so you can mitigate your risk of identity theft.
While you’re at it, unsubscribe from those marketing emails, too! Reducing the account clutter in your life can remove the temptation to spend on stuff you don’t actually need.
Reevaluate your tools
Consider your needs going forward. Has it been a struggle to keep up with your finances? What do you like or dislike about your current setup? Consider looking into tools to make things easier for yourself. Look at what resources are available through your bank or employer as well.
For example, if you’re looking to better track your online purchases and those made in person, consider using Milli’s virtual and physical debit cards. You can use the virtual card for online purchases and physical for any time you swipe a card out in the world. Then, you can better understand your spending. Using the tool might require an adjustment from how you typically do things, but the added benefit could be well worth it!
Make Plans for Your Money
Along the way from evaluating your budget, spending, and goals, as part of your spring financial cleaning, you may be inspired to set some new plans for your money. Maybe this is the year you squash outstanding debt, further your education, plan that long-awaited family reunion, or tackle some energy-efficient home upgrades. Whatever’s on your wish list, take action to make it part of your horizon.
To make an effective plan, understand the total cost of the purchase you’re considering, factoring in any associated costs to avoid surprises along the way. Research tax credits such as the Lifetime Learning Credit or home energy tax credits that may apply. Lastly, identify how you’ll pay for the expense in the short term – do you have the money saved already, or can you save up in a few months by setting aside some of your income?
Money is a tool to empower our lives. When you plan for intentional spending on the things that matter most to you or will benefit you in the future, it can help you form a better relationship with money instead of feeling controlled by it!
Your finances are a vital part of your everyday life. You need to create a system that helps you manage them in a way that fits you best, no matter how hands-on or hands-off that may be.
Taking some time to do some spring cleaning with your finances can help you create and maintain the financial system that serves you best. It’s all about empowerment, not limitations!