We cling to old financial behaviors or we put off cleaning up our financial lives because it’s easier than doing the work it takes to get rid of stuff.
Here are my five tips to get you started on spring cleaning your finances:
1. Get rid of at least one bad financial behavior. Every tax season, experts encourage people to change their withholding if they routinely get refunds without having a major change in their tax situation (marriage, children, buying a home). The average refund has been slightly more than $2,800 this year, according to the IRS. You can get that money in your paycheck throughout the year by increasing the number of withholding allowances on your W-4 form. The more allowances you take, the less money is withheld. People often tell me they like getting a refund. It is a forced savings plan, they argue.
Okay, I give up. With the interest rates paid on simple savings accounts so abysmally low, perhaps a tax refund is the only way you will save.
But pay close attention to this: If you have debt, please change your withholding. Otherwise, you will spend the year paying interest on debt you could be paying down with the money you are letting the government hold for free. To find the correct amount to withhold, go to www.irs.gov and search for “withholding calculator.” Use the results to help complete a new Form W-4, which you then submit to your employer.
2. Get rid of old financial documents. For a helpful guide on how long to keep certain documents, go to www.usa.gov and search for “Managing Household Records.” To start this purging process, pull out your financial documents and organize them into three piles: an active file, dead storage and items to shred. Use the chart on the site to decide what can be discarded.
3. Get the right tools. When you spring-clean your house, you may find that you need to have some additional materials. It’s the same with your finances. Take advantage of financial literacy classes in your area, especially in April, which has been designated National Financial Literacy Month. Learn what it takes to change financial behaviors. A survey released this week by FINRA Investor Education Foundation found that female respondents with low levels of financial literacy are more likely to engage in costly credit card behavior than male respondents with low financial literacy. Even when controlling for demographic variables, such as income, education, minority status, women were more likely than men to carry a balance, pay the minimum payment on their cards and be charged a late fee. You will find some good resource links on the group’s site at www.finrafoundation.org.
4. Embrace green. Now is a good time to have your financial documents delivered electronically rather than through the mail. But if you do go green, don’t get lazy and fail to review the statements when they are delivered to your e-mail inbox. I worked with a woman who couldn’t tell me much about her monthly cash flow because she had switched to getting her bank statements online and wasn’t checking them.
5. Do a credit report checkup. When was the last time you ordered your credit report? The majority of adults have neither ordered one nor reviewed their credit scores in the past 12 months, according to a financial literacy survey just released by the National Foundation for Credit Counseling. The only official site where you can get your report for free is www.annualcreditreport.com.
Spring is traditionally a time to clean. I worked on my closet because it’s a tradition I learned from my grandmother, Big Mama. Every April, right after Easter, she would meticulously go through our home to put away winter curtains, clothes and other items. It was an all-day affair that was met with many groans. But afterward, the house did have a fresh feel about it.
Spring is also tax time and a good time to clean up your finances because you’ve already had to pull out your documents to file your tax return. Decide today to do some cleaning because clutter, especially when it comes to your finances, can be costly.
Readers can write to Michelle Singletary at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071, or . Questions are welcomed, but because of the volume of mail, personal responses may not be possible. To read previous Color of Money columns, go to postbusiness.com.