It's beginning to look like spring is finally here! We’ve been teased at times with the weather here in Portland, but finally it looks like spring is showing up and so too are warmer temperatures and some sunny days! This means plenty of time spent pulling weeds in the yard and other household and garden maintenance that is overdue from a long winter.
A midst all of this household spring cleanup, why not dedicate time to some spring clean up of your financial life? Unfortunately, this tends to be an area of life that is so often neglected in many ways. So, let’s all dedicate some time, along with filing your taxes, to focus on making sure your finances are all in order and you're making all of the best strategic decisions when it comes to such an important part of your household!
You might be thinking, “Where should I begin? What’s most important for me to focus on?” Let’s take this time to walk through some ideas on where you could begin to tackle some open items:
Let’s start with an easy one. Check your credit! This one is so simple, yet often forgotten. With all of the recent data breaches from various companies and the ever-growing threat of identity theft, its important to make regular checks of your credit to confirm there’s no funny business going on! You can visit annualcreditreport.com to look over a credit report or visit creditkarma.com to get an idea of your current credit score.
Review your insurance coverage – It’s a good idea to review your current insurance coverage at least annually, or as changes happen in your life, such as major home improvements, new cars, birth of a child, new job, etc. When I say review your insurance, I am talking about your home, auto, umbrella, life, disability and health insurance. I know it sounds like a bit of a daunting task, but wouldn’t you rather make sure your coverage is sufficient before something happens? For example, say you start a new job, take the time to review the benefits package and determine if you have sufficient group coverage. Is it more advantageous to utilize your new employer’s health benefits, or maybe it’s better to use your spouse’s options?
Review your budget – What? You don’t have a budget? Maybe its time to create one, or at least begin to get a handle on your spending habits. Mint.com offers some account aggregation and expense tracking tools to help you manage this. With clients that I work with, we aggregate accounts and track spending and budgeting automatically through my financial planning software which clients have full access to. This makes it easy and transparent to see where their money is going every month. No matter how you do it, having a proper budget in place for your household is important. Unlike the government, your household should not be running at a deficit every month!
Review your retirement savings – Have you taken the time to review your retirement savings contributions? How did you determine how much you should be saving? Consider increasing your retirement contributions by 1 or 2 percent in your 401(k) or maybe your ROTH IRA if you’re not already maxing out your contribution. My guess is you probably won’t even notice the difference on a monthly basis, but your future self will thank you! Going back to #3 on this list, when creating a budget and thinking through retirement savings, I always emphasize with clients the idea of “paying yourself first”. Prioritize savings in your budget, then focus on discretionary spending. Unfortunately, savings often is prioritized last, meaning whatever is left at the end of the month is what’s saved. Let’s take the time to shift the thought on this pattern!
Review your investments – Take the time to review your investment allocations and think through your risk tolerance. Are they all in line with where they should be? Is it time to consider rebalancing your investments? Maybe your time horizon has changed, which could mean your investments could be too risky or conservative. My blog post (Do-you-really-know-how-youre-invested-in-your-employer-sponsored-retirement-plan-7-considerations) talked through the subject around knowing how your retirement accounts are invested. Don’t underestimate the importance of investment allocations for both the long term and short term. By properly allocating and diversifying, you could be adding incremental benefits that really add up over the long term!
Consolidate accounts – Do you have a number of old 401(k) or IRA accounts scattered at a few different institutions? Not only can this be stressful, trying to keep track of where your money is, but it can also make it more difficult to manage your overall investment strategy. By rolling old plans into your current employer sponsored plan or into an IRA, you’ll find that keeping track of your retirement savings and investment strategy will be much simpler to manage.
Review your estate planning documents and beneficiary designations – I lump these together as they both fall under the same category. Regarding estate planning documents, you should be reviewing your will (and guardianship provisions), POA, health directives and/or trusts to see if anything should be updated. Maybe your guardian election for your minor children should be changed, or the trustee you had elected is no longer willing or capable to serve in that role. Reviewing these documents with an estate planning attorney is often smart as they can ensure that your wishes are appropriately documented.
Your beneficiary designations on your various accounts should also be reviewed periodically. Make sure that who you’ve previously named as primary or contingent beneficiary is still who you actually intend. I’ve seen many occasions where married couples have still not appropriately updated beneficiary designations on their life insurance or retirement accounts after having been married for years!
Shred paperwork you don’t need and organize what you do need – When it comes to tax related documents, the IRS recommends keeping supporting documents for tax returns such as, W2’s, 1099’s, etc. for 7 years. Those utility bills from 3 years ago that you’ve filed away…those can be shredded as well. Same goes for those credit card statements and bank statements.
Items you should plan on storing, to name a few, are items like tax returns (and proof that you paid), receipts for large purchases, receipts for capital home improvements, brokerage annual statements (including cost basis if necessary) and IRS forms you filed when making non-deductible IRA contributions or ROTH conversions.
Review your withholding – Those nice big tax refunds are nice right? Well, I’m not such a big fan myself. I’d prefer not to give Uncle Sam a tax-free loan from my paychecks throughout the year when it could have been saved or invested instead. The goal should be to achieve a good balance, where you receive a small refund when filing your taxes and maximize your paychecks throughout the year. You can utilize the IRS withholding calculator www.irs.gov/individuals/irs-withholding-calculator to help you determine the proper amount of withholding.
These are a few common items that most households should be paying attention to on a regular basis. While you’re busy spring cleaning your house and yard, why not take the time to do the same with your finances?
Don’t have time, or need help? Consider working with a CERTIFIED FINANCIAL PLANNER™, preferably one who is a fiduciary and fee only to ensure your interests are being put first. A good planner can help you prioritize and take some of the work off your plate so you can focus on the other priorities in your life.
Hopefully this list helps get you started in your spring cleaning. Just remember how confident you'll feel after spending the time getting your financial life in order, and who knows, maybe you'll garner up the energy to do some yard work!
Does any of this bring up any additional questions? Things you hadn’t considered? Consider it an opportunity to reach out as I’m here to help!
Do you want to bring a new level of attention to your financial decisions? Reach out to me at email@example.com or schedule a complimentary consultation here.
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Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation.
About the Author
Ryan Mohr is a Certified Financial Planner (CFP®) serving the financial planning and investment needs of clients through his firm, Clarity Capital Management, LLC. He has over a decade of financial planning and investment management experience and is committed to helping people realize the full potential of their financial resources.