Spring Cleaning Your Financial House: Tips for a Better Financial House

Once a year, I do a financial housecleaning - from calculating my net worth to finding out how I can improve my cash flow. One thing I have noticed is more people seem to put more emphasis on what TV program they are watching than their own financial direction - using the excuse - "it's just too hard for me to understand or it's too late for me." Most financial problems happen when the problem becomes what we lack in knowledge. If we understand first on what we lack, we will realize on what we need to know to improve our financial house.

Here is what you need to start a spring cleaning in your own financial house:

Supplies Needed:

Discipline - Today, we seem to lack the necessary discipline or required sacrifice that is necessary for financial strength. You need to simplify your life style and stop the over-consuming - and live within your means.

Common sense - If you do not understand a financial vehicle - like signing a mortgage with a term you do not understand - then keep asking the question until you understand what you are signing. Most times, lenders or any source you need to get information from, have a tendency to intimidate us with terms we are not familiar with in our every day vocabulary. Mirror it back to the source by repeating what you think you understand. It doesn't make sense to accept or sign something you don't understand only because you are afraid to "look stupid".

Determination - Knowledge is power. Go after as much knowledge as you can when it comes to understanding finances or even how the economy might affect your personal welfare. A good defense is a good offense.

Be Consistent - When it comes to the basics in finances, you need to stick with the discipline that has given you success. Do not allow greed or fear to get in the way.

Being honest and face your fears - If you have an embarrassing debt or feel like you are facing the worst scenario, as in bankruptcy - ask yourself if you are being honest and owning up to that fear. Nothing is impossible to achieve if you believe you can attain success. The more you bury your fear, the worse the outcome will be. Stop worrying and start taking action.

Get to Work!

After you gather your supplies, let's start applying it. You might need some elbow grease here. Open your eyes to see where you are going. You cannot know where you are going without knowing where you have come from.

A net worth is important to do once a year. Take all your assets and put a dollar amount on them - use the two supplies mentioned above - "being honest" and "facing fears" and recognize how much you could get if you were to liquidate everything today for a dollar amount.

Some assets to include would be:

Your real estate

Your car

Your cash in the bank

Your cash in retirement accounts

Collectibles including fine jewelry, gold or silver coins

Stocks and bonds

Now, take your liabilities which would include:

All your loans and debt outstanding

Subtract the liabilities from the asset value and you now have your net worth - what you would be worth if you sold off everything you owned and paid all your outstanding debt. So, how does that look?

If it doesn't look too good, consider more housecleaning to improve your situation by increasing cash flow and reducing expenses for your household. Some examples would be:

Insurance overhaul - review all your insurances, home, car, and life and talk to your agent on how you can reduce the premiums. Don't forget they are in business to make money on you. They are going to scare you and make you think you need more insurance than you do need. Use your common sense here. Do your own due diligence and research what might be needed and see if what you are being told sounds right. Also, every year there could be a new program that you may not be aware of that your insurance company might offer. Increase your deductibles and put that premium savings aside in an emergency fund.

Go over your W4 - see if you can increase it based on how much refund you received in the prior year or any new changes that will give you more tax deductions - changing single to married, a new child, a new job, a new house, etc. This is cash flow in your pay check.

Go back to basics and understand what compounding means - How important is compounding to your savings? There's an old anecdote about compounding that sheds some light on its importance to savings. If I gave you a choice to have a penny a day, doubling it each day for 30 days versus one million dollars, which would you choose? It may be tempting to take that million dollar offer. Except, I would suggest for you to get a calculator out and do some compounding. The answer is you take the penny compounded daily over a month period. By doubling your money frequently, in this case daily, despite it being just a penny, you would reach over 5 million dollars in 30 days. Everyone has to start with a small amount of money; however, through compounding you will create wealth.

Budgets are Important! - Finally, review your budget monthly. Between revising your meals to accommodate your grocery budget to cutting back going to movies or out to eat, this needs to be reviewed more often. If you do not know the outflow, how will you know if you are in control of your spending?

Does Your Financial House Need Remodeling Work?

Now, after all that cleaning, if your financial house needs some remodeling, then seek a professional financial housecleaner - a financial planner. However, make sure you check out references and their track record. And never, use a financial planner that operates on a commission basis. Use a financial planner that charges you a one time fee to organize your finances. You may not think you have a lot of money to need a financial planner. However, they serve a purpose for all people, not just the rich. They can help you with everything I mentioned and also provide you with valuable tips that apply to your situation directly.

People call me smart in finances. However, do I call myself smart? No, I call myself inquisitive. I chose to find out answers and not leave it up to someone to control my destiny. If someone or some business entity owes me money, I will go after it till I get it. Most of all I am never embarrassed with asking questions. I find that most times, after I get the answer, I realized that it wasn't as complicated as I had thought. I've always had the knack for finances. However, I have been more self- taught than gaining knowledge through any one book. I am grateful for my mistakes I made because through those mistakes, I gained knowledge - nothing like learning through the University of Hard Knocks.