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Spring Cleaning and Your Finances

| March 08, 2016
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A few months ago I read Marie Kondo’s bestseller, “The Life-Changing Magic of Tidying Up,” and have been incrementally tidying around my office and house since.  We ordered some new furniture in February and a few days later the delivery truck dropped it off in our garage where it sat for a week because I did not have a good solution for getting rid of the stuff it was replacing.

We gave away the items that still had life in them, and for the stuff that was truly worn out the most convenient and economical way to dispose of them was to rent a roll-off dumpster.  The dumpster arrived and that evening I enlisted the help of our son to move our large sectional couch into the dumpster which was instantly half-full.  It felt great to finally take care of this, and over the next two weeks we went through the entire house and evaluated every piece of our property, giving away or disposing of many items. 

Marie Kondo teaches that in order to evaluate your possessions, you need to physically pick them up and allow yourself to sense how they make you feel, and if the object no longer “sparks joy” then you can feel safe parting with it.

Many of the people who we meet have elements of their finances that no longer spark joy for them, and some missing elements that could add peace of mind.  Often their investments and risk management products were acquired over many years in a series of “one-off” decisions and they have never gone through the process of re-evaluating them in light of their current financial needs, and also the new strategies and solutions that exist today.

Here are a few ideas for conducting your own financial “spring cleaning”:

Give yourself a security audit:  Several clients and family members had their emails hacked this past year.  It is important that you keep all of your passwords secure and in a safe place.  Simple tips for keeping them secure include not sharing them, not using common phrases, not using your birthdate, etc.  I use a secure cloud-based password vault called LastPass (https://lastpass.com/)*, which streamlines the process of creating and keeping track of online credentials.  It also allows you to easily generate and use extremely secure passwords, and different passwords, for all of your accounts, and the system encrypts and keeps track of everything for you.  I also recommend you consider using “2-factor authentication” for your email accounts and other online accounts.  This is now widely available and adds an extra layer of security by requiring you to enter a secure token when logging in from a new device.  The token is typically sent via text to your phone which makes it very hard for a criminal who has somehow acquired your login and password from breaching your account from their own computer or phone.

Review your will, insurance coverages, and beneficiaries:  First – have a current will!  Over the past year, we helped several families who were going through the unnecessary, lengthy, expensive, and public probate process where a judge helped them to settle the deceased’s estate, simply because there was no will.  Creating a will and the necessary related documents can be daunting, and this is an area where we can be a resource to you to help you understand the options that are available.

Make sure to review your insurance amounts, liability limits, deductibles, and auto uninsured motorist coverage to make sure there are no gaps.  If you have assets to protect, you should seriously consider adding umbrella liability coverage to your auto insurance if you don’t have it.  While you are reviewing your life insurance, you should ensure you have specified the proper beneficiaries and update them if necessary.  You may also have a permanent life insurance policy with cash value and there may be ways to add valuable long-term care benefits without any additional premiums.

Evaluate debt: Assess your total amount of debt and how much you are paying each month in interest and see if there are better interest rate options.  It may be the perfect time to refinance your mortgage or car loan or consolidate credit card debt.  Key ratios to help you evaluate debt, liquidity, and savings are:

  • Debt-to-income ratio = total debt/after-tax income. Goal is <36% with a mortgage and <10% without a mortgage.
  • Liquidity ratio = cash/monthly committed expenses. Goal is to have 3-6 months of expenses in cash.
  • Savings ratio = monthly surplus/monthly income after-tax. Goal is 10-20%.

Review spending and consider creating a budget:  Take a look at the bills you pay every month.  Are there any that are unnecessary or can be reduced by shopping around for better rates or new promotions?  Find an online resource that is very simple and helps with budgeting. (Visit stewardshipcolorado.com/resource-center for some free resources and calculators.)

Simplify and streamline:  Do you have multiple retirement accounts from previous employers and piles of papers cluttering your home office?  Consider consolidating accounts and also opening a secure online cloud-based file system like Box* or Dropbox* to scan documents into and then shred.  Another valuable benefit of having a secure cloud-based file system is you can configure it to back up any important documents on your home computer, laptop, and phone.

We would be happy to answer any questions this article may have raised for you or just sit down for an hour and talk about whatever is on your mind.  Please call Jenny at 303.900.4018 to schedule a conversation or visit us at stewardshipcolorado.com to learn more.

Sean Wood is an Investment Advisor Representative offering Financial Planning, Investment Advisory and Insurance Services through Stewardship Advisory Group, LLC; an SEC Registered Investment Advisor. Securities offered through United Planners Financial Services, a Limited Partnership, Member FINRA, SIPC. Stewardship Advisory Group, LLC, Stewardship Colorado, LLC and United Planners Financial Services are not affiliated companies.

* The listed 3rd party service is not, and should not be construed as, a recommendation, endorsement or sponsorship by United Planners Financial Services.

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