Is it time to declutter your finances?
Resolved to reduce the clutter in your home using Marie Kondo’s KonMari method? What about applying the same method to your bank account?
Ugh, right? The thought of trawling through bank statements and populating figures onto a spreadsheet fills most of us with dread. As long as there’s money in our bank account, and we’re not spending more than we earn, it’s all good - isn’t it?
Well, yes. And no. Much like decluttering your home to create an environment that you love, applying the same principle to your finances will help you to identify areas that could use a little improvement. And knowing exactly where your money is going - on the things that you enjoy and are important to you - might just spark a little bit of joy!
What’s your ideal financial situation?
Take a moment to think about what you want your financial life to look like. Perhaps you’d like to buy a house, or go on that long-awaited overseas trip. Maybe you want to upgrade the car, or dine out with friends at a super fancy restaurant once a month.
Of course, the less sexy goal might be to pay off your credit card debt or student loan, or reduce the mortgage. But just because it’s less sexy, doesn’t mean it’s any less important. Freeing yourself up from debt is a good way to give yourself a better financial outlook.
Sort items by category
To avoid getting overwhelmed with bank statements and piles of receipts, you could use an online budgeting tool to break the task down into smaller, bite-sized chunks.
This is the key aspect of getting your budget underway. You need to know where you’re spending money first, in order to identify areas where you can make changes.
Make this process easier on yourself by using an online budgeting tool. At Booster, we've created a budgeting tool which automatically links in with your bank account and organises your expenditure into key categories. It certainly makes life a lot easier!
Once your main areas of spending have been identified, you can start to work out where your money is going. There will be four key types of spending:
- Fixed costs - e.g. rent, mortgage, insurance, power, internet, gas, subscriptions
- Flex spending - any spending that can fluctuate from month to month, such as groceries, petrol, shopping, dining out etc
- Debt repayments - any payments you’re making towards any debt e.g. credit card, student loans, car repayments
- Other priorities - anything you’re putting towards other goals, like saving or reducing debts
Be sure to leave some flex in your budget for unexpected expenses, such as vet bills or car repairs. You want to be able to have space in your finances to cope with anything that crops up, without compromising your financial security.
Focus on joy
Organising your expenditure into categories will highlight spending that doesn’t necessarily bring you joy, but is essential - like paying your rent, or power bills. But it will also highlight past purchases that have brought you joy (those sparkly shoes, that sports watch) or not (another crappy lunch from the local cafe, buying more reusable shopping bags).
Once you’ve worked out if you’re spending a lot of money on things you don’t value or enjoy any more, you can start to make some changes:
- Are there any subscriptions that you are paying for but not using? (i.e. gym membership, magazine subscription, music or streaming services etc.)
- Are you using Ubers or driving to work when you could walk, or take public transport?
- Do you need a second coffee every day? Or can you make do with just one?
- Do you go out for lunch every day when you could be bringing your lunch to work?
- Could you cut back on eating out and start cooking at home more?
- Can you get a better deal on services like power, internet or insurance?
Once you've established your budget and goals, check in with your budgeting tool regularly to track your changes. This will keep you on track and honest about your spending.
Honour the past
The important thing is to not continue to let fritter or junk spending clutter up your finances. Learning to be more mindful with your spending will help you to avoid making the same mistakes in the future.
As you sorted through your spending, you’ve probably identified some ‘fritter’ or ‘junk’ spending: daily coffees, work lunches, clothes or shoes that you’ve barely worn, a dinner out that you really didn’t enjoy, and possibly even some purchases you don’t quite remember making….!
It’s important not to be too hard on yourself during this process. Acknowledge that the money has been spent - and learn from it. Did buying another $100 pair of sneakers really bring you joy? Or was it that you were just bored and happened to be passing the shop?
Do it all at once
I’m not going to lie. Decluttering your finances isn’t a quick, 5-min job. You’ll need to put aside some dedicated time to get started. However - think of the initial time as an investment. Putting in the hard work now to identify your spending habits and changes you can make will return big dividends in the long run.
Applying the KonMari method to your finances will help you to start feeling more confident about where you choose to spend your money. You can start to focus on the experiences and items that bring you joy, while moving you forward to financial freedom.
Article by Rachel Southby, Booster.
Rachel got onboard the KonMari train several years ago. She managed to let go of many items, but her shoe and book collections remain untouched.