Spring Cleaning

I was just interviewed by a reporter who is writing an article about financial organization; the importance of getting your house in order—especially if you are one of those who feel the pinch of our current economic cycle. And, after all, it is spring. With spring we think of spring cleaning. In addition to the cleaning, it is good to do some clearing, which includes getting rid of old, worn out items, or those things that we never use. It feels so good to sweep through our house carrying all those things that no longer serve us out to the curb, or to a charity. This approach can be applied to our finances, as well.
What things are you hanging onto in your finances that are no longer serving you? What debt can you clean up? What investments do you hold that are such poor performers that they may not rise with the market recovery? What accounts do you have for which you never even open the statements? What about that money you owe someone that makes you cringe to even think bout it? And that credit card debt—do you have a good plan to repay that?
All of these situations in your life are lying beneath your everyday thought and are causing you stress. There is still energy directed toward these issues, even if it is just to suppress them or try to forget them. Suppress this stuff long enough and it can make you unhappy, even depressed.
On the other hand, putting together an action plan—just doing that—will create a sense of relief.

 

Here are my financial spring cleaning tips:

• List your assets (What you own)
Everything has changed so much in the last two years that your investment accounts could be way out of balance. If you haven’t had them rebalanced, they probably aren’t meeting your original objective. Have an analysis done on the accounts to measure them for risk, costs, and diversification. We will be happy to help with this.
Consolidate small accounts. It is much easier to keep track of them when you don’t have a pile of statements to go through.
Check your life insurance to see if it is still meeting your needs, and if you still need it. If you are retired with a good amount of assets, you might want to convert your life insurance to an income-producing account.
Eliminate those orphan accounts that aren’t doing anything for you. Maybe you inherited a stock that hasn’t done well in years but you keep it for sentimental reasons; or you received a partial account in a divorce and it causes you stress to even think about it. Move that money to an account that will be monitored with careful attention.
Once organized, keep all your financial papers in one spot. Schedule time to review periodically.

• List your liabilities (What you owe)
List them first in size, for example: mortgage(s), car loans, student loans, equity line of credit, and credit cards. Beside each one write down the interest rate you are paying on it.
Current rates for mortgages are under 5%! Weigh the cost and time extension of refinancing, and if it doesn’t make sense for you, try to pay an extra principle payment at least once a year.

• Now you can develop a plan
Look at your income and outflow monthly. I’ll bet you have at least some discretionary spending that you can reduce. Begin paying down that highest interest rate debt aggressively. When it is paid off, begin paying down the next highest, and so on. You are clearing the financial clutter that has caused a drain on you and your finances. As you move forward and reduce debt, increase your contributions to your savings plans.

Taking a few moments to sit down and put this on paper will make you feel better–just like spring cleaning.

Tags: assets, debt, financial housekeeping, liabilities, spring cleaning

This entry was posted on Tuesday, April 21st, 2009 at 2:23 pm and is filed under Blog Posts.