The start of the New Year is a good time to make positive changes. Decluttering is one such exercise that can help you take stock of things around you and help you get rid of or change things that are no longer working for you. However, decluttering doesn’t just apply to spring cleaning, but also your personal finances. Whether it’s cutting unnecessary expenses, managing debt, or organizing your investments, reassessing your financial life at the start of the year can significantly improve money management and ensure your money is working twice as hard as you. On that note, let’s find out how you can go about decluttering your finances to start your financial journey right in 2025.
Create a budget and follow it
An effective budget is the foundation of good financial health. Creating one is not complicated—start by listing your income and essential expenses such as rent, utilities, and loans. Also, allocate funds for discretionary spending and savings. For instance, if you earn Rs.50,000/month, try the 50-30-20 rule—allocate 50% for necessities, 30% for lifestyle expenses, and 20% for savings. Make use of budgeting apps to track your expenses in real time and review your budget regularly to identify and curb overspending.
Review your subscriptions & memberships
Review the subscriptions and memberships you have and identify the ones least used in the last year. Discontinuing those services can free up some funds. For example, cancelling an OTT service, costing Rs.500/month that you hardly use can save you Rs.6,000 annually. Follow this for different categories of expenses by reviewing your bank statements for recurring charges. Identify what you truly need, and cancel what you don’t. The money saved can be redirected towards an emergency fund or an investment plan.
Clear debts promptly
High-interest debts, particularly credit cards, can potentially destabilize your finances if not managed properly. As part of decluttering, work on a plan to pay off all your debts, especially high-interest ones. For example, you have a credit card with an APR of 36%. If you have an outstanding balance worth Rs.1 lakh on this card that you pay off in time, you will save nearly Rs.36,000 which you would otherwise have to pay as annual interest. Set automated reminders or standing instructions to ensure bill payments are done on time. Also, consider consolidating debts at a lower interest rate to save money.
Review insurance policies
Insurance is crucial for protection against the consequences of financial emergencies. But, missed premiums can lead to lapses in coverage, leaving you and your loved ones vulnerable. Ensure that you review your life, health, and vehicle insurance coverage at the start of the year and adjust the coverage based on your evolving needs. For instance, if your health insurance premium is due in February, set aside the required amount to avoid a last-minute scramble. Also, remember to update your nominees in case of a change in circumstances.
Safeguard your finances
Keeping your money safe is just as important as saving. Be vigilant about your financial information by following recommended safe practices. This includes using strong passwords for online banking platforms, enabling two-factor authentication, and monitoring your accounts for suspicious activities. Keep 3–6 months’ worth of expenses in an easily accessible emergency fund to weather unforeseen challenges. For example, if you use your credit card frequently, set up a transaction limit for your credit card to limit your liability in case of unauthorized usage.
Review and rejig your portfolio
Simplify your investment portfolio by consolidating accounts and eliminating underperforming investments. For instance, if you have a cash-back insurance policy with a high premium that is not yielding results, consider cancelling it and redirect the money towards a more profitable investment. Remember, diversification is key to optimizing your returns while also mitigating overall risk. Take care to not over-diversify as it can complicate tracking and affect returns.
Automate investments and savings
Automation is a great way to ensure discipline and save time when managing finances. It can help you save, invest, and repay debts without manual intervention, saving you from missed payments and late fees. For example, scheduling a transfer of Rs.5000 to your savings account each month can ensure consistent savings.
Decluttering, regardless of what it is applied to, can yield rewarding results. With a clear plan, disciplined budgeting, and timely debt repayments, you will be well on your way to end 2025 on a strong financial footing.
Adhil Shetty is the CEO of BankBazaar.com
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