Your 2020 money clean-up: 5 ideas to start the new year right

I started my post-holiday slump by staring at an ugly pile of papers sitting on my desk. I tried not to think about the even bigger digital pile of bank statements, bills and papers to be filled in. It had been building up for weeks, or was it months already? It seemed so easy to put it off for a rainy day, or the end of December. And here we were, with the nagging voice in my head telling me to “get a grip, and sort this”. But who doesn’t want to spend their time doing the 1000 other, more important things to be done first as part of their 2020 planning, such as planning the summer holidays or cleaning out the closet.

Even setting fitness goals suddenly seemed more attractive than going through the growing pile. 

You would think that someone like me, with 15 years of experience in financial services, and having created a financial confidence, digital self-help tool for women would not have this problem. I’m supposed to have a diligently organized financial life, right? Well, as founder, CMO and mother, I can assure you there are more fun things to do in life than sorting one’s own finances. It is just not what comes naturally to most people. 

But I wouldn’t be where I am if I didn’t practice what I preach. I buckled down and literally booked a day in my calendar: December 27, 2019 – Money Clean Up Day. To add some extra sparkle (and to preempt any excuses to delay further), I booked a money date with my family for the same day and decided that whatever money that would be saved as part of the clean-up would be used for a “making a difference pot,” designated to something nice for the family or for the planet. 

In the end, the money clean up day was a great experience, and I learned a lot along the way.  Here are the five simple steps that I used that can help you to save or make more money in the year to come.

And, most importantly, it will leave you feeling energized and happy once you’ve done your own cleanup. 

1. Take stock of your spending 

First, I used my ebanking app to look at where our money went over the last 12 months. (If you don’t have ebanking, try one of the many budgeting apps available.)

The first glimpse was devastating: taxes, household expenditure, health insurance, childcare… the list went on. To make it quick I went through the biggest money suckers first and asked myself: could we do any of this better?

Of course, there was room for movement. For instance, we called our insurance broker to see if there was a better deal available (there was). We also took a closer look at the tax bill to make sure we weren’t missing anything (we all do). Depending on where you live, a tax advisor might prove helpful for identifying those little line items that are costing you.

Next up was the household expenditure. This doesn’t need to be completely painful. Reflecting on where your money went in household spending can bring up happy memories of the things you did together as you built your home over the last year. It was also an eye opener for me as I realized how much we actually did not need.

The result was a self-made bucket list of things that can be done better next year, such as avoiding credit card fees, spending less on careless little things that have no real value and being more careful online to avoid rarely used subscriptions and impulse buys. This extra spending will create a real chunk of money that can be used for a very different purpose.

2. Calculate your monthly burn rate

Equipped with the transparency of one year’s worth of total spendings, I was able to calculate the monthly burn rate of my household (total spending divided by 12 months) and compared it to our monthly income. 

Here the math is quite simple: if the balance is negative, then either more money needs to come in or spending needs to be decreased. If the balance is positive, then the money that remains can be invested or saved. Just remember not to be penny wise but pound foolish when you’re picking at your monthly spending! Cutting out your coffee habit won’t do you any good if you’re still spending on unnecessary big items, like new appliances.  

3. Have a money talk with family or friends and define your rules

With a clear idea of our spending, I was able to have a money talk with my family. We reviewed the figures and our spending behavior, and discussed what major things we will need in the year to come. This would include apartment repairs, major events that will require spending and family holidays. 

Early planning is beneficial as it can help you secure better prices or include saving for something in your monthly burn rate.

If you know you have your cousin’s wedding happening next year, why not set up alerts for ticket prices now, or set aside some cash each month to get that new dress you’re dying to wear. 

The family talk is important for all members of the family. We made sure that the kids were involved, as we reviewed their accounts and talked to them about what their money is doing all day.

Make this an age-appropriate discussion for your children. For younger kids, maybe this means talking about how much Netflix costs each month, or what a new football kit will require. Older kids should be included in discussions about school fees, activities and even gas money if they’re using the family car. 

And finally, we discussed our family investment rules: what do we want our money to do? What is more important to us- spending time together or having a large bank account? How much of a safety pot do we want to have? What can each family member contribute? We listed five action items for us as a family in 2020 and pinned it to the wall.

If you’re single, try having this conversation with your friends. Ask them about how they invest their money and how they prioritize their spending. They may also have helpful tips and tricks to help you save in 2020. 

4. Set yourself up for ongoing success and minimize your time spend

You’ve got the numbers in hand, and you know where your unnecessary spending is happening. Now it’s action time. Call the bank, consolidate accounts to avoid fees, get rid of unused subscriptions, cancel credit cards, order new debit cards, find new options for your children’s accounts and set up automatic payments. Automatic payments will be a helpful time saver, but will also allow you to have steady payments embedded in the household budget. 

Don’t forget to consult professionals. I set up appointments to help on taxes and review our health insurance options. 

And finally, block off dates in your diary for a mid-year money clean up day. It will help prevent your December 2020 pile of “stuff” from getting out of control, but it will also be a great time to reflect on how you’ve done with the year so far. 

5. Invest, no matter how little

With all of the tools available today, you do not need a lot of money to start investing. Exchange Traded Funds (ETFs) are a good option for beginners, but also any robo-investment tool can be helpful and will start with small amounts of money upfront. Many people also opt for a fund savings plan. This does not require a large bucket of money upfront, but builds your investment over time. I have this for my kids and also for the family.

What matters the most is not how much money you’re investing, but that you invest the right amount for you. Define the money that you need in the coming year, anything that will be needed in the next three to five years and the money that you might not need as soon. 

Only invest in the stock market with a long term, or five year plus, mindset. There is a theory, and data proves, that long term investing in stocks will not lose your money, but the investment has to be diversified and low cost. But breaking that down is for another article altogether! 

To help your investment plans along, set up automatic payments.

Like with fitness, it is the discipline of doing the little things regularly that matters most, not one of big actions. 

This may sound intimidating, and you may think that you need a money cleanup week, not day, but the actual time that it takes to sort through everything took me less than a day. And it has left me energized, refreshed and with the peace of mind that I have things under control now. The nagging voice in my head is gone, allowing my creativity and energy to be used for things other than a to-do list.

Just remember, you don’t have to be a certified financial planner to be good with money. All it takes is a little bit of discipline every now and then. So, when will you do your year money clean-up? Set a date and get going. It’s definitely worth it.

For more real-live, practical money tips, visit me @smartpurse