Spring Clean Your Budget

Spring Clean Your Budget

Open the windows and take control over your finances

Spring is one of my favorite seasons, especially here in Arizona. The temperature hasn’t reached those scorching summer highs yet, so I spend a lot of time outdoors, enjoying the sun and cool spring breeze.

I love spring for another reason, too. It’s all about growth and renewal, opening the windows, letting the light in, and cleaning out your life.

Many people have a ritual of spring cleaning, attacking their closets, kitchens, bathrooms, garages, or any other part of the house to freshen it up for summer.

It’s easy to spot the areas in your house that need a good scrub. But it’s much harder to spot areas in your budget that need an update.

That’s why spring cleaning should also include a good review of your budget. Take this time to evaluate where your money is going, and identify opportunities to increase your wealth.

Change your mindset

The best part of spring is embracing a new mindset. One that says, “Out with the old, and in with the new.”

You need to bring a new mindset to your budgeting as well.

There are three different mindsets when it comes to budgeting.

If you budget like the Poor, you’ll look at your financial statements and think, “I don’t have enough money. What can I get rid of to live below my means?”

There’s nothing wrong with getting rid of liabilities or expenses that are draining your funds, but the goal of budgeting is not to live below your means. The goal of budgeting is to expand your means, and find new creative ways to pay for the lifestyle you want.

If you budget like the Middle Class, you’ll look at your financial statements and think, “I have some extra money left over from my high-paying job. I should reward myself and treat myself to something nice.”

I like to reward myself as much as the next person, but I don’t do it with any leftover income. Instead, I budget like the rich…

The Rich look at their financial statements and think, “How can I make more money?”

The rich don’t try to eliminate things that bring them happiness and live below their means. They also don’t try to spend their extra money on more liabilities.

Instead, they take that extra money and invest in asset producing income that will produce more wealth to pay for their lifestyle.

This is the key mindset you need to bring to your budget as you spring clean it. Instead of thinking about all the things you need to get rid of, you have to think creatively and look for new opportunities to increase your income.

Where to start

Spring is a great time to reevaluate your budget because you’ve just come through tax season. You should have a good idea of where you are financially, and have all your receipts, paperwork, and bank statements on hand.

Once you have all this information in front of you, it’s time to simplify it. That means understanding two personal finance statements.

Your Income Statement and your Balance Sheet.

Image of income statement and balance sheet

Categorize all your expenses and income streams into their respective columns. Don’t forget to include any income-producing assets, and income-draining liabilities.

Remember, an asset is something that puts money in your pocket. It’s that simple. This is the cash-flow pattern of an asset:

Image of asset cash flow pattern

A liability is something that takes money out of your pocket. This is the cash-flow pattern of a liability:

Image of liability cash flow pattern

Understanding how these two sheets work together already opens up possibilities for your budget. You can better see what liabilities are draining your budget, and clean out the ones that aren’t bringing you joy. You will also get a better understanding of where your income is going, and open up to new ideas for expanding your income. 

Ask how

Still not sure how to do that? Start by asking one simple question.

How?

How can I afford this? How can I pay off my debt or mortgage? How can I live my lifestyle without giving up the things that bring me joy?

Spring cleaning your budget is about opening up to new, fresh possibilities. It should be a fun activity, but for many it becomes sad as they throw out things that make them happy, or start working overtime, searching for a part-time job to increase their salary.

This simple change in language will allow you to expand your thinking when it comes to your budget.

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