April 7, 2021
Decluttering. Thanks to Marie Kondo, meditation gurus and an amazing amount of time at home, we have all had opportunities to declutter our closets, our monkey minds and our “working-from-home” space (formerly known as the dining room). But what does it mean to declutter your financial life? What ever happened to ”set it and forget it”?
I like to look at financial decluttering as something I do while I’m prepping my taxes, celebrating the new year, or taking a moment to think about the previous 12 months. Anytime there is a major life event (birth, death, marriage, divorce, purchase/sale of real estate, as examples) is a good time to review your full financial situation to make sure you’re taking into consideration your new life status and not letting any financial opportunities pass you by. Below are some low-hanging fruit – five easy ways to start your own personal financial decluttering – to help clear the path to seeing your full financial picture.
1. Review Your Beneficiaries
This may seem obvious, but so many of us hate thinking about our own death that reviewing a will or beneficiary statement is the absolute last thing on our to-do list. That said, anytime you have significant life events like divorce, death, a birth in the family, it’s time to reflect on your will and all your accounts, and review accordingly. As Ben Franklin so famously said, nothing is certain in life other than death and taxes. Making sure your will is up to date and your beneficiaries are correct is the best way to streamline your estate plan.
During this review, keep in mind named account beneficiaries supersede any will or trust. This means that beneficiary designations should be regularly updated on all bank accounts, investment accounts, retirement accounts, corporate benefit plans, life insurance policies, certificates of deposit, and any other asset accounts you hold. While reviewing, you may also want to consider the addition of a second or contingent beneficiary and/or representative as a fallback plan in case the primary beneficiary is unable to inherit your assets.
2. Insurance Policy Review
Most of us have insurance for at least one aspect of our lives, given there are so many insurance options and policies one person can hold. Be sure to review your life, health, disability, long-term care, auto, homeowner, and excess liability/umbrella policies on an annual basis. Review of these policies could have an economic upside, too.
Examples of savings opportunities: many of us have reduced our driving this year. There may be a better rate available through your current driver’s insurance with the change in mileage you’re putting on your car. Homeowners’ coverage may also be changed with additional material purchases, or any updates you may have done to your home. The addition of a security system could potentially lower costs as well. An annual review to ensure there is adequate coverage on your house and possessions can save you headaches if there is a claim later.
Life insurance is also another consideration, especially for a new family. Purchasing a somewhat inexpensive policy even if you’re young and healthy is always a great idea. I’ve heard horror stories in my business – families where there is a death of the primary breadwinner, and the remaining parent is saddled with stress and a significant financial hit that could have been cushioned with the right policy in place.
We have also seen an uptick in premium pricing for Long-Term Care insurance for many of our clients. There are often opportunities to reduce costs by reducing specific criteria, while still maintaining the adequate protection needed.
3. Automate Your Savings
Ah, the old fashioned savings account. Often forgotten until needed, there are many options available to explore. If you haven’t reviewed your savings in a while, now is the time. There are automatic transfers available that make it simple and painless to put away money from every direct deposit. This makes saving for a rainy day, a new house, a dream vacation or something completely unexpected that much easier. Think about what you need to put away for future plans, upcoming tax bills, and unanticipated needs.
First, review 401(k) or other retirement plan contributions, and make sure you are maximizing your payments in order to maximize long-term growth. Look at retirement accounts from past employers to see if there is opportunity to roll over and consolidate. Along the lines of investing your 401(k) contributions, you may want to consider investing any excess cash in other investment vehicles, like the stock or bond market, or real estate. This will keep your cash working for you, hopefully faster than inflation, while also making it a bit more difficult to spend readily.
If you have children or grandchildren to consider, look into 529 or GET college savings plans to help save for large education expenditures, while again making money in the process through compounding interest. This also makes the savings stick as getting money out of these savings vehicles takes extra steps.
4. Check in on Your Financial Goals
Reflect and assess whether your personal or family values are being represented by your financial goals. Take some time to revisit your financial goals and how they connect to your values. Are you working toward the same goal or dream as before, or have your priorities shifted since you last set a goal?
Working with a financial advisor can expedite this process while keeping things like tax legislation and a holistic view of your entire estate in mind. Your estate planning documents should be reviewed by an attorney every 3-5 years, or after any major life change, such as death in the family, marriage, birth(s) or divorce.
5. Organize Your Documents and Accounts
We all have those piles of documents that accumulate over time. It’s now time to review your statements and financial documents that have started to infringe on your living space. Set up paperless statements to reduce clutter, and shred old and unnecessary documents. Review your checking account registers; do you have bank, credit or store accounts, gym memberships, recurring monthly charges that you haven’t used in months? Are there charges that you don’t even remember signing up for? It’s amazing how quickly seemingly small, recurring expenses can put a dent into your cash flow.
By following these simple tips, you can gain a fresh perspective and shine a light on your financial clutter. Following this article is a checklist for your own financial asset organization, to be used as a great starting place for this process. We at Coldstream can also help you create better ways to organize your financial life. No matter where you focus your next financial spring cleaning, let’s talk about how we can help you devise strategies to help you achieve your goals and streamline your life.
Elaina Shemeta, CFP® | Team Lead & Relationship Manager
Elaina can be contacted at (206) 281-7700, email@example.com, www.coldstream.com
Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any federal tax advice contained in this communication (including attachments) is not intended or written to be used and cannot be used for (1) avoiding penalties imposed under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any transaction or matter addressed herein unless the communication contains explicit language that it is a tax opinion in compliance with IRS requirements. Please contact your tax advisor for guidance on your individual situation.