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I don’t know about you, but I’m obsessed with watching the new Netflix series, “Tidying Up with Marie Kondo.” There’s something about watching the drama unfold as people choose to declutter their homes and reinvent their way of life along the way. Who knew that folding shirts could be so cathartic? Watching it, though, I can’t help but see the inherent similarities between where we live and how we manage our money.
Do you feel like you have the financial equivalent of a clean home (you look financially healthy on the outside) and a messy closet (your financial situation stresses you out)? If so, you’re not alone.
Frequently, clients come to the Financial Gym*, just like these families come to Kondo, knowing something is wrong. They can see their messy finances even if others can’t. They know something is off with the way they’re living; they can’t figure out how to do it on their own, and they end up in a vicious cycle of shame and sadness.
Similar to what Kondo does in people’s homes, our team of Certified Financial Trainers take clients through a process of unwrapping their financial situations, they figure out how to put it back together and give their clients a roadmap for continued success. But it’s also something that you can do on your own. Here are four steps to help you:
Put all of your financial information in one place
Just as Kondo asks people to take all of their clothes out of the closet and drawers and pile it up in one place to look at it, you need to do the same thing with all of your financial information. Take the time to gather your data and either put it into Excel or find an app or a website like Mint or Personal Capital where you can track it in one place.
Your information may include:
- Bank accounts
- Credit cards
- Student loans
- Personal loans
- Car loans
- Retirement accounts (401(k)s, 403(b)s, IRAs, TSPs, etc)
- Insurance policies
At the end of this exercise, you may feel like Rachel Friend in the first episode of “Tidying Up with Marie Kondo.” You want to cry over seeing everything you have and lament about all of your poor decisions that led to this moment. But the process isn’t about feeling shame, it’s about understanding what you have, so that you can put a plan together so that you can manage it better. Just as Kondo wants all the clothes to fit in the drawers, I want all of your spending to fit into your household income.
Reflect on your spending and figure out what sparks your joy
You should download three months of your monthly expenses from your bank and/or credit card accounts and try to combine it all into one place. Then go through all of your expenses, look at them and ask yourself “Does this spark joy for me?” At the Financial Gym, we call the things that spark joy for our clients their “sacred cows.” What are your monthly or quarterly expenses that you would protect above all others because you need them in your life to bring you joy and satisfaction? Is it family? Is it a gym membership? Is it healthy food? Is it the place you live?
Just as Kondo wants these families to remove the waste, I want you to remove your spending waste. Most of us spend money without thinking about it and end up wasting it on things we don’t value rather than having money for what we love. Determine what your joy-inducing expenses are and commit to getting rid of the rest.
Consolidate your financial information into a road map
Once you see all of your financial information and determine what your valued expenses are, you can start to piece together a road map for success. Set some action items for yourself based on the data you have collected from these exercises.
Do you have more credit cards than you’d like? If so, you can strategize to map out a plan to consolidate them with 0% balance transfer cards, personal loans or by personally calling your credit card providers and asking for lower rates. Are you spending more than you make every month? And are you still doing it when you exclude those expenses that don’t bring you joy? If so, maybe part of your road map is the path to making more money, whether it’s negotiating in your current job, side hustling or looking for a new job. Are you not saving as much as you’d like? There are plenty of savings strategies and hacks (hint: automate!) you can employ to become better at this without requiring a lot of time. I guarantee you this is less cumbersome than figuring out how to fold your shirts and prop them upward in your drawers.
Remember that it’s not about what you’re letting go, but what you have
One of the best gifts tidying your home gives to you, is the understanding of what is important and what you value, and at the end of the day, it’s not a lot of stuff. It’s the same experience with tidying up your finances. Taking the time to develop awareness on what and how you spend, will lead to you making smarter choices over time that not only save you money, but also bring you joy. I find that when our clients focus on preserving their sacred cows, they don’t miss the other expenses in their life.
Editor’s Note: Shannon McLay is the founder and CEO of The Financial Gym, whose passion lies in helping people get financially fit. The Financial Gym is a personal financial services company that takes a fitness-inspired approach to their clients’ finances. Through her blog, Financially Blonde, her book, Train Your Way To Financial Fitness, her podcast, Martinis and Your Money and her company, Shannon is committed to making financial fitness fun, easy and accessible for everyone.