Financial Spring Cleaning: The Stoplight System
Spring cleaning may usually involve combing through drawers inexplicably full of bobby pins, UNO cards, and silverware; however, in lieu of (or in addition to) these grueling vacuuming adventures, consider whipping out your old bank statements for a good ol’ fashioned financial spring cleaning. The Stoplight System will help you evaluate your spending and savings habits and let you begin to take steps towards streamlining and securing your bank accounts.
What You Need
Your bank statements and a green, yellow, and red highlighter
What You Do
Highlight “the unavoidables” in green, i.e. groceries, mortgage and car payments, loan payments, gas, ect.
Highlight “the maybes” in yellow, i.e. Netflix and/or cable subscriptions, magazine subscriptions, clothing purchases, ect.
Highlight “the oops, I shouldn’t have bought those” in red, i.e. that second outdoor grill you bought, a pair of boots you bought on a whim, ect.
Interpreting the Results
- Note any trends in irresponsible spending, such as having a tendency to overspend on clothing you do not need. You can then use ELM3’s guide to cutting spending in these areas.
- Also note any reoccurring payments that are more or less than you expected and try to figure out why this is the case. In that same vain, this is a great opportunity to investigate charges that don’t make any sense.
- You can also use this as an opportunity to make sure you aren’t making payments for products or subscriptions you do not use.
- Do your statements show you making irregular contributions to your retirement and savings accounts? If so, determine the amount of money you will send into savings, put towards retirement, and use to pay off debts each month, and automize these contributions online.
- Did you have to print off statements from five different banks? If so, take a moment to consolidate debt, credit, and retirement accounts.
Next Steps
- While you are looking at your bank statements, ensure you have automized bill payments. If you have not, you can set up automatic, paperless bill payments online, significantly reducing the amount of paper cluttering your house and guaranteeing you do not spend money needed for these payments.
- Also take a moment to review and use expiring credit card rewards. You may find you have some cheap mini-vacation opportunities available!
- Ensure you have different and difficult-to-crack passwords for your various bank and credit accounts. Varying your passwords will significantly reduce chances of someone hacking your account.
- Finally, shred old bank documents and organize those you decide to keep. As a rule of thumb, you probably don’t need to hold onto bank statements for more than a year and tax documents for more than seven years.
When you’re done, enjoy a nice cup of hot chocolate knowing that you are taking ownership over your financial future!
