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Do you know how sometimes you need to clean and declutter your house? Well, the same is true for your finances. If you did a credit report that listed all of the lines of credit you had open, I bet you would be surprised at how many there are – Store cards you opened to get a discount, or one you signed up for in college that you forgot about. Do any of your Credit cards have annual fees you’re paying you don’t know about?
If you found it difficult to answer these questions, there's a good chance your finances are cluttered. A major part of going into recovery mode as a Spender is to educate yourself about your own finances, take control of what's going on, and discover a new sense of peace. If you follow these 5 steps to completely declutter your finances, you should be able to know exactly what is going on financially in your life, so you can move forward with success. Building a routine around your finances is one of the most important things you can do. The more scheduled, organized, and decluttered you make your finances, the better things will be and the more control you will have.
One of my favorite things to tell my kids when I have them pick up is, “Everything has a place.” Take that advice for setting up what I call a Money Flow Center in your home. That's just a fancy name for a designated place to organize, sort, schedule, take in, and pay out all of your finances. Your Money Flow Center is where you keep track of all of the money flowing in to your house (like paychecks). This is also where you keep track of all the money flowing out of your home (like bills, invoices, dance lessons, gifts, etc).
Your Money flow center should not be a shared space, meaning, don't stack old newspapers there, don't let your kids color there or go through it, set it apart for your finances only.
I use a wicker basket with file folders. It doesn't have to be really fancy or expensive. Don't go Pinterest crazy. Try to repurpose things from around your house or check out a thrift store or a dollar store. This step is kind of simple, but it makes a HUGE difference just to see everything related to your finances in one organized place.
A rainy day fund is another name for an emergency savings account. But as you are decluttering your finances, declutter your house and sell things online or have a garage sale. Then, you can save all of the money you earned from items around you home and put it in this emergency fund. This fund is something you use ONLY in emergencies and I recommend trying to get it between $500 and $1500.
When Mark and I were getting out of debt. We decided to set our our Emergency savings account in a separate bank across town. Since I am a Recovering Spender, adding the inconvenience of driving all the way across town and having to physically go into the bank branch to make a withdrawal helped us to not dip into that money for not-so-emergency “emergencies”.
The reason why you NEED to set up an emergency fund is so when that emergency comes, you won't have to rely on credit cards anymore!
Your credit score is a good thing to be aware of, but it isn't everything. In the spirit of decluttering your finances, next, I want you to get a free credit report simply to see if there are any credit cards you've forgotten about or that are in collections. Pay off any cards that have outstanding balances that you forgot about. Then ask them to put your account status back in good standing. This will help to repair your credit. You can grab your free credit report here! It's a great place to start.
After that, any cards you are not using need to be closed right away. This is a great time to cut of the extra that you don't need. Extra credit cards are just not necessary. There is no “What if” scenario that will justify that Banana Republic card. Close it. Many of you know that as a Recovering Spender, using cash only is the way to go. Declutter your credit report. Consolidating your debt onto one Credit card with a low or 0% interest rate may also be a good option for some of you. It will help simplify reducing your debt each month as well.
And yes, reducing your total available credit may give you a tiny ding on your credit report, but who cares. This is about YOUR financial health. If your finances are cluttered and you don't even know how many open lines of credit you have, get rid of them. This is about YOU, not FICO or Experian. And the thing is – in the long run, your credit score will actually be better as you progress towards financial health, despite closing a few open lines of credit.
When you are trying to budget and you forget a minimum payment, that is just annoying! That's why I strongly recommend setting up automatic monthly minimum payments on your credit cards. This will make budgeting easier for you, and it will help repair your credit score as those regular payments come in. If you're financial footing is a little shaky, don't set up automatic payments for your other bills just yet. Stick with just the Credit Card minimums. Also, now that you have your Money Flow Center up and running, it will be harder to lose or forget about all of your other bills.
Decluttering is not just a one-time thing, but a new way of life. It will take some time, but keep plugging away. Split it up into smaller chunks and spread it out over the course of a few days or a week. It doesn't take a day to have financial clutter. It happens gradually. So, don't expect to declutter your finances in a day either. Stick with it. You can do it!
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My book, The Recovering Spender, discussed how I accomplished this mind shift, and how it changed my family’s financial future.
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