Every change of the season brings everyone – mom, friend, co-worker – out of the cracks and ready to tell you to deep clean your house and organize your belongings. And sometimes while folding clothes and cleaning windows you’ll enter a period of self-reflection. Amidst the rush to spring clean before it becomes summer it’s important to evaluate and organize your personal finances as well.
The best-selling book The Magic Art of Tidying Up by Marie Kondo, a Japanese author and decluttering expert, has taken the world by storm with her own Netflix show bringing her techniques to a wider audience. Her expertise can not only be used while cleaning your junk drawers and closets, but Kondo’s philosophies and lessons are also applicable when managing your finances.
Just like the pile of laundry you should’ve folded weeks ago or the mountain of papers you’ll one day get to, managing one’s personal finances can be intimidating. Let’s admit it, many of us are not checking our bank statements monthly or keeping track of our budget as often as we should. But by using these house decluttering lessons from Marie Kondo on your finances, the task becomes a little less intimidating, a little more fun, and turns the insurmountable into achievable. For those who can’t seem to reach savings goals, debt repayment plans, or struggle with budgeting, these tips can take your goals from dreams into reality.
Start tidying up your finances with these five Marie Kondo-inspired steps to keep your personal finances in as great, or better, shape than your closet. Your future self will be glad you did.
Step 1: Pile Everything in the Same Category in One Place
Marie’s method to decluttering involves an easy first step: gather everything within one category into one pile. This step makes it’s easier to see how many possessions you’ve accumulated, particularly if you find items within the same category to be spread around the house. When items are all gathered together it makes it easier to see areas of over-buying.
Similarly, it’s tempting to manage your finances such as bills, loans, credit cards as individual expenses from each institution, however, this mindset makes it easier to overspend or mismanage your money.
Get started decluttering your spending habits by putting together categories: expenses, debt, savings, and income. Then track your spending in these categories from all debit, credit, cash, and loan transactions.
Here are some example categories and subcategories breakdowns that you may consider using:
As a DECU member, you can use the Money Manager tool to manage all of your accounts in one place, including personal accounts, loans, credit cards, investment accounts, etc. A great feature that our Money Manager has is Categorization Tagging where you can create custom categories for your monthly transactions to help track your spending in different areas.
At the end of this step, when you’ve put everything together, you may either be terrified of the expenses you’ve accumulated or you may be relieved to find categories you’ve over-budgeted. Whatever end of the scale you find yourself, it’s important to proceed to the next step.
Step 2: Eliminate Expenses that Don’t Spark Joy
After you’ve organized your expenses, review your spending habits. Do you notice any patterns? Are there areas or expenses you didn’t realize had added up to so much?
The key part of the Marie Kondo method isn’t getting rid of everything, but to identify what brings you joy.
A regular Starbucks drink or a subscription service aren’t necessarily bad. However, while it’s tempting to categorize a monthly subscription to a snack box as a need, you have to put that expense into perspective with your long-term goals. It might be fun to try new snacks, but in comparison to the car you want to purchase in 6 months, is the expense worth it? Out of the total number of snacks you receive, how many of them do you end-up enjoying and how many snacks are still sitting uneaten? The key in this step is to be truthful to yourself and get rid of bad spending habits that hurt your long-term goals which in the end doesn’t bring you joy.
It’s important to note that decluttering your expenses doesn’t just have to be about eliminating costs; reducing expenses works just as well to provide an organized budget.
Go through your expenses a second time and ask yourself this question: “Is there any way for me to reduce this cost?” This works particularly well when it comes to your insurance or even loan payments. There are many ways to “get rid” of some portion of expenses by searching for alternative options or lower rates. DECU Insurance Services offers free quotes on insurance for cars, homes and more. As a member, you may be able to take advantage of these opportunities, so consider switching from your current providers to a more affordable alternative. Having everything under one roof also simplifies your life and saves you time.
Step 3: Organize Your Debt by Size
Living a debt-free life is an achievable goal, but it’s not easy to get rid of debt all at once. The real question when looking at debt repayment is determining which single debt to tackle first.
Marie Kondo breaks down organization by grouping items of similar size. The first step is to place interest rates and balances of all of your debts into a spreadsheet. Then, place those debts in order of the highest interest rate to the lowest. Then the end goal is to pay off the debt with the highest interest first. This method is the most common way to tackle your financial obligations, and can minimize the total repayment amount.
There is also another approach that may work for you! If you find yourself intimidated by your debt, prioritize repaying your lowest balance first, something you can get rid of right away. While the interest rate on your smallest debt may not be the highest, it may give you peace of mind and satisfaction by eliminating one expense from your budget. After taking care of that first balance, you can switch to paying off your highest interest debt next, or just aim to eliminate the next smallest debt you owe. Whatever method you choose, debt repayment is one way to improve your mental health. As Marie Kondo said, decluttering is also about your mental health, not just the cleanliness of your house.
If you find yourself having a hard time managing your debts due to balances being owed with different institutions and companies, you may benefit from refinancing or consolidation. These are great ways to lower your payments and/or manage them so that you won’t miss a due date again. Not only can a missed payment come with a late fee, but this can also have a negative effect on your credit score. Learn more about this option by contacting a DECU agent near you or give us a call at (800) 338-6739.
Step 4: Breakdown Your Goals by Tiny Boxes
The tiny boxes system may be one of Marie Kondo’s most loved methods. Why? Because it keeps belongings organized, easy to see, and keeps items from falling on top of each other. We can also use this method in terms of saving goals.
Saving goals may seem hard to reach if all you want to do is to save as much money as possible by a certain age. But by having smaller, attainable goals it makes the bigger goals – like having enough money for a $50,000 house down payment – attainable. If you focus on just having $50,000 in an account, the goal may feel like it will take forever to reach. So instead of having that one big goal, you can break it down into a goal of having $5,000 saved within the next 6 months, allowing you to feel a sense of accomplishment. Then by repeating this step until the bigger goal of $50,000 is achieved, you will find your goal easier to reach, and not get discouraged along the way.
While some goals may be materially focused, another popular way to break down savings goals is by life milestone such as a college fund, a destination vacation, or a wedding. You can even break down savings steps into smaller, and quick-to-accomplish, steps by creating micro-goals. For example, a vacation savings plan may look something like this:
Saving fund goal: Vacation in the Caribbean by end of the year.
Goal #1: Flight ticket goal $1,200
Goal #2: All-inclusive resort $1,500
Goal #3: Activities $300
Whatever your goals may be, take a look at all of the things you want to save for and create micro-goals. For DECU members, Money Manager is not only a great tool to manage your expenses, but can help with accomplishing your saving goals as well. You can log-in and start using this tool now, or expand on your current usage.
Step 5: Keep Up with your Organized Space – A Tidy Financial Life Brings a Happier You
Now at this point your finances should be neatly organized. The final step is sometimes the hardest: maintaining your financial organization. The last thing you want is to fall into old habits and have to repeat these steps from scratch again.
For that reason, it’s important to track your expenses and review it on a weekly or monthly basis. Make sure to create a set time and work it into your routine to accomplish these tasks. While it may seem like knowing your true financial state will be more stressful than just ignoring it, the unknown holds more fear than the known. Kondo repeats the idea that “everything has a home.” By creating a budget and finding time to manage that budget you can ensure your goals have a home too.
The main reason why Marie Kondo’s book is called The Life-Changing Magic of Tidying Up is not just because she helped thousands to declutter their space, but because a decluttered space brings about a peaceful mindset, thus creating a happier life for those who follow these methods.
Take the guesswork out of your spending, and create assurance with a de-cluttered budget. If you encounter a situation where you’re not sure if you should buy those nice new shoes or eat out instead of cooking at home, ask yourself if it will spark joy and if it will fit into your budget. Spending isn’t bad, but spending above your means can have serious repercussions. A budget isn’t there to inflict pain, but to provide a plan to accomplish your financial goals.
If you truly manage your belongings and your finances, you can find areas of over-spending, and then declutter your expenses. Moreover, by practicing debt-free habits regularly, you can keep your finances on track to reach saving goals or pay-off debt. A happier life isn’t one with more things in it, but one wherein each item sparks joy and allows you to be financially stable, thus making you happier.