Financial Spring Cleaning
Spring is in the air, and that means it’s time for spring cleaning. But wait! Before you pick up that dustpan, give a thought to your financial spring cleaning first.
What do finances and spring cleaning have to do with each other? Well, if you have financial goals you’re planning for, the answer is “A lot!” These days, the term spring cleaning is often used as a metaphor for getting our daily affairs in order. As you can imagine, getting your financial affairs in order is critical if you intend to check off all the items on your personal bucket list. There are many things to keep track of. Many tasks that need doing; many decisions to make.
So how do you begin? Well, when many people do their actual spring cleaning, they make a checklist. What supplies they’ll need, what rooms need to be cleaned, what needs to be mopped, vacuumed, dusted, or organized… it’s the most efficient way to clean. We suggest doing the same for your finances. So, without further ado, here is a sample Spring Cleaning Checklist to help you stay organized and on track to your financial goals.
Financial Spring-Cleaning Checklist
[ ] Contribute the maximum amount to your IRA if you have one. Remember, an IRA is a valuable way to save for retirement in a simple, tax-advantaged way. For the 2024 tax year, the annual IRA contribution limit is $7,000 if you’re under 50, and $8,000 for those 50 and older.1
[ ] Review your 401(k) and rebalance if necessary. How has your 401(k) been performing? Do you understand how your money is being invested, and why? Are you contributing enough to take advantage of any employer matching? Do the investments inside your 401(k) need to be rebalanced to match your original allocation?
[ ] Review your holdings. These days, many investors adopt a “set it and forget it” mentality with their investment portfolio(s). That’s certainly better than stressing over the markets daily, but it’s critical to review your holdings at least once or twice a year to make sure everything is in order. Is your allocation still where it should be? Is your portfolio still in line with your tolerance for risk? Are your holdings providing the kind of return you need to reach your financial goals? Do you understand everything you own and why? If the answer to any of these questions is “No” or “I don’t know,” then it’s time for us to sit down and take a closer look at things. And when we say, “review your holdings,” we mean all of them. That includes all institutions you do business with! (Many investors sometimes forget where all their assets are kept and thus fail to review them.)
[ ] Review your cash flow and examine your expenses. Which are likely to continue for the long-term? What expenses can you remove right now? This is a good way to find extra ways to save for your goals, and it will make your life a lot simpler once retirement comes.
[ ] Decide now what to do with your tax refund. If you’re getting a tax refund this year, think about how you want to use it. Approximately 1/3rd of Americans use their refund to pay off debts; others stick it in a savings account.2 One underrated and oft-underused option: Invest it instead. It can help you catch up on saving for retirement, pay for a loved one’s college expenses, or enable you to achieve one of your long-term goals even sooner.
[ ] Make sure you know where all your estate planning documents are. You should have a copy of your will, power of attorney, advance medical directives, letter of instructions, and other documents in a secure but easily accessible place. Make sure your spouse (or other loved ones) knows where these documents are kept.
[ ] Review your current insurance policies. Are there any potential gaps? (For example, Disability and Long-Term Care insurance are two types of policies many people don’t have but are often extremely valuable for retirees.)
[ ] Check your credit reports. Credit reports aren’t just for getting loans. They’re also a handy early-warning system for fraud and identity theft. A good rule is to check your credit at least once per year. Be on the lookout for changes that don’t look familiar to you as well as “hard inquiries.” This is when a business checks your credit report because they received a new application for credit or services. These can impact your score and stay on your reports for up to two years. They can also be a red flag for thieves trying to use your information illicitly.
[ ] Reprioritize your goals. As you think about getting your finances in order, also think about the goals your finances are designed to help you achieve. Do you have new goals? If so, write them down. Are there older objectives that need more attention? If so, determine where they need to be placed on your schedule. By doing these things, you can ensure your finances are not only organized but getting you closer to the places — and person — you want to be.
Spring cleaning is never the most fun thing in the world, but it’s often one of the most beneficial. Just as you probably enjoy living in a clean, organized home, you’ll enjoy the peace of mind that comes with getting your finances in order. Trust us: if there’s one thing we’ve learned in all our years of helping people plan for their goals, it’s that a little organization today can make for a much happier tomorrow. In the meantime, we wish you a happy spring — and a happy spring cleaning!
1“IRA Contribution Limits,” IRS, https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits
2 “Over a third of Americans plan to spend their tax refund right away, mostly to pay bills,” CNBC, https://www.cnbc.com/2022/04/02/most-americans-plan-to-spend-tax-refund-on-essentials.html