Declutter your finances: A year-end money detox guide

Financial clutter often goes unnoticed, quietly draining your wealth through subtle and unseen channels. Start by auditing your digital footprint—it's often the quickest win. Anshi Shrivastava, Head - Personal Finance Training at 1 Finance, points to three classic leaks that nearly everyone recognises, yet surprisingly few have fully resolved -- dormant bank accounts, forgotten auto-debits, and overlapping investments.

Check your banking app now. Got unused subscriptions to streaming services or gym memberships? Cancel them. Close idle bank accounts with less than minimal balances in your savings account to avoid maintenance fees.

A "quick portfolio overlap check" for mutual funds can help identify redundancy - tools like 1Finance's free analyzer show if two schemes share over 30 percent of stocks, indicating duplication. Consider exiting the duplicate to streamline your portfolio.

Clutter can lead to confusion and chaos, says Nehal Mota, CEO & Co-Founder of Finnovate. She points out that holding onto outdated records, such as contract notes, mutual fund statements, and tax returns, for the last 10-15 years can be unnecessary. Digitizing these documents on cloud platforms can help free up physical space, as three years of records are sufficient for operational purposes.

“Insurance-cum-investment hybrids like ULIPs or endowment plans are often inefficient, doing a poor job at both insurance and investment. Consider switching to pure term and health covers to reduce premiums by 50-70 percent,” said Shrivastava. Regular quarterly reviews can help identify and address such inefficiencies, keeping your finances on track.

Centralise and organise your documents

Excessive paperwork can sabotage financial peace, with investment files often cluttered with unnecessary reports, receipts, and statements. “To combat this, create a smart file master system that allows you to access any document quickly, ideally within five minutes, helping you stay focused on priorities,” said Mota.

The key is to centralize all financial documents and ensure loved ones know where they're stored. India's DigiLocker is a valuable tool, especially after SEBI's March 2025 circular, which allows PAN- and Aadhaar-linked securities to be shared with family members. In the meantime, apps like 1 Finance Doculocker offer secure, encrypted storage for mutual funds, ITRs, and other important documents, making them easily accessible when needed.

Mota recommends categorising documents by importance, making critical data easily accessible, filing less critical documents, and digitizing the rest. Grant family members secure access to important documents via cloud storage services like Dropbox. Automate tasks by setting up email rules to sort statements and using UPI-linked apps for tracking expenses. This way, you'll avoid last-minute scrambles during tax season or emergencies.

Streamlining your investment portfolio

A bloated portfolio can be overwhelming and inefficient. Shrivastava emphasizes that asset allocation is a crucial investment decision, focusing on a balanced mix rather than micro-managing. A simple approach is to focus on four key asset classes: equities for growth, debt for stability, real estate to hedge against inflation, and gold as a safeguard against uncertainty.

For equities, 2-3 low-cost index funds are enough, chosen based on your risk tolerance. Shrivastava suggests prioritizing low-cost index funds with low expense ratios to minimize overlap and achieve true diversification, as active funds often underperform indices in the long run. Allocate short-term funds (up to 5 years) to liquid or short-duration debt funds, and keep 12-18 months of expenses in easily accessible liquid assets. Focus on consistent investing, minimal portfolio tweaks, and a long-term perspective.

Also read | Step-Up SIPs: The game-changer for building Rs 10 crore corpus

Mota advises against over-diversification, saying, "More isn't always better. We often spread ourselves too thin across stocks, funds, and SIPs, when it's not necessary." Diversification is achieved with 10-12 distinct asset classes. Redeem investments that have reached their goal, and archive them digitally to avoid clutter. Annual reviews with a clear plan, focusing on purpose rather than details, help keep your investments on track.

For emergencies, keep six months' expenses separate from everyday banking. Opt for family floater health insurance with a deductible top-up and pure term life insurance, avoiding investment-linked policies. Mota advises, "Use insurance only for risk coverage, not investments.”

Also read | Rs 80 lakh in FDs: Is it enough to retire in five years?

Strategies to pay off debt

Excessive debt can strain cash flow, making EMI payments feel endless. Shrivastava advises prepaying debt whenever possible, as extra payments reduce the principal and future interest. Focus on early years when interest is highest, and use calculators to decide whether to shorten the loan tenure or reduce EMI payments for better savings.

Mota recommends, clearing high-cost consumer loans or keep them minimal before investing. For instance, multiple credit cards outstanding and consumer loans are costly – consolidate or repay them.