The Kondo effect on millennial money
‘Tidy up’ so each dollar sparks joy, and find happiness by increasing your bank balance
Marie Kondo has inspired countless people to wipe out clutter. Her KonMari organizing method, popularized by her book and Netflix series, lays out how to get more joy from your life and possessions.
This approach can extend to your money, too. Applying her mindset can reduce the financial clutter in your life and help you make a better plan for each dollar. Here’s how to “Marie Kondo” your finances.
COMMIT — AND IMAGINE A BETTER FUTURE
Before you dive in, commit yourself to the task and visualize what you’ll gain.
Do you want to spend less on eating out? Are you saving up for a car or a house? Have a clear picture of your goal — a zero balance on your credit card, or that new car or home — to stay focused throughout the process.
“If you can create a mental image of what your life with your money will look like on the other side, it’s a lot easier to create a path to get there,” says financial coach Kimberly Zimmerman Rand.
UNDERSTAND YOUR CATEGORIES
Kondo’s method of tidying focuses on sorting through categories, like clothing, books and paperwork, and miscellaneous items.
Pull a few months of bank and credit card statements and take the same approach to your three main spending categories: needs, wants and savings.
Needs: The non-negotiables, like housing and debt payments, fall into this category. These monthly expenses may not bring you joy, but they keep a roof over your head and your credit score afloat.
If this category consumes an outsized portion of your income, see where you can trim. Trading in your car for a less expensive one, for example, could mean an extra $100 in the bank every month.
Debt payments may be an unavoidable part of your budget, but you can find ways to make them fit more neatly. If you’re sorting through a mess of credit card bills, see about reworking the terms. By consolidating debt onto a credit card with an introductory zero per cent interest rate or via a personal loan, you can pay less in interest, though you’ll need good credit to qualify. And you’ll have fewer monthly payments to manage.
Wants: Chances are this category brings you the most joy — but it’s also likely where you can trim the most. Expenses like meals out, new clothes or vacations fit here.
Examine your spending on wants and ask if each one brings commensurate enjoyment. If not, trim that expense. Keeping that money in your accounts could make you happier by reducing financial stress or helping you see progress on retirement savings.
Subscription services are an easy target, says Brian Walsh, a certified financial planner and manager of financial planning at SoFi, an online lender.
“When people start tracking their spending, they may see unused services come up,” Walsh says. “Gym memberships, game memberships, Netflix and Hulu at the same time. These can be easy cuts to make.”
Savings: This category can be a little too easy to keep minimal. AFinancial Post report says only about a quarter of Canadians have an emergency fund to deal with unexpected expenses.
Building up your savings helps keep your finances tidy. Tucking away even $50 a month can make a difference.
SET YOURSELF UP FOR SUCCESS
Once you’ve tidied up, it’s time to set yourself up to achieve financial goals.
Automating payments for things like utility bills, student loan payments and credit card payments is an easy option. It also protects you from accidentally missing a payment.
Shred old financial paperwork, such as bank statements or paid utility bills. Sign up for digital versions. Don’t go overboard, though; you do want to hang on to tax documents.
To keep up the good habits in the long run, Kristen Holt, CEO of the non-profit credit counselling agency GreenPath Financial Wellness, recommends focusing on your goals: “Take steps to set and forget your finances, like automating payments. And continue to tie your work back to your dream.” This column was provided to The Associated Press by the personal finance website NerdWallet. Sean Pyles is a debt writer and columnist at NerdWallet.