It's spring cleaning season, and many of us often use the fresh season as an opportunity to work on our finances. Here's what not to do while sprucing up your finances:
1. Don't get too extreme. Be careful not to overhaul your budget in a way that's unsustainable. If you want to find balance, consider using the 50/30/20 budget method: Devote 50% of your monthly take-home income to needs, 30% to wants and 20% to savings and debt repayment.
2. Don't close out credit cards. Explore other options. For example, a balance transfer could allow you to move your current credit card balance to a card with a lower rate. But be careful not to carry a high balance on the new card because it could increase your credit utilization. Or, if you don't like your current credit card's annual fee, ask your issuer whether you can switch to a different card without one.
3. Don't splurge with your tax refund. Funnel extra cushioning into your emergency fund or paying down some of your existing debts. And evaluate why you received such a big refund. The IRS has a tax withholding estimator on its website to determine the right amount of withholding.
4. Don't misplace your money. No, we're not talking about losing your physical dollar bills (although that would be a mistake, too). Rather, we're talking about putting your money in a place that doesn't match your goals. Many banks offer high-yield savings accounts at 1.5% to 2% APY, said Devon Klumb, CFP and financial planner at RhineVest in Cincinnati, Ohio. These accounts can help you earn more interest on your money. Keep in mind that rates could change in light of the current economic climate.
5. Don't forget the little things. Finally, while you're already thinking about your finances, don't overlook the organizational aspects of your money that often go neglected. Here are a few simple to-dos from Lars-Alexander Kuehn, associate professor of finance at Carnegie Mellon University's Tepper School of Business:
• Review your auto and life insurance coverage. (You may also want to shop around to ensure you're getting the best rate.)
• Double-check your retirement account and beneficiaries to guarantee everything is set up how you'd like it.
• Log into your bank and credit card accounts. Set up alerts so you'll be notified when there's activity on your account. In addition to tracking your spending, this could help you catch any suspicious charges or withdrawals.
E-mail: courtney@nerdwallet.com. Twitter: @CourtneyNerd.
