Although taxes have been filed and the school year is wrapping up, there’s still plenty of time for spring cleaning. In fact, at Redwood, we think this is the perfect point at which to do so.
To help get you started, here are our top 10 spring cleaning tips (financially speaking, that is):
1. Clean Out Old Financial Records
Minimize the amount of space your old financial documents are taking up in your home or on your computer. Below is a guideline for how long to keep some of the most common financial documents.
For more document clean-out guidelines, read our Going Green & Getting Organized Newsletter.
2. Scan and Back Up Financial Data and Records that You Should Keep
If you’ve accumulated a collection of paper statements or other financial documents over the year or you have online statements taking up space in your e-mail, now is a good time to scan or move them to a secure folder or online storage system for safe keeping. Also back up your saved data to protect against any technological malfunctions.
3. Review Beneficiary Designations and Estate Documents
It’s important to review your beneficiary designations and estate documents on a regular basis. Make sure that the people, trusts or institutions listed as your beneficiaries, executor, power of attorney, healthcare advocate, guardians and trustee still align with your current feelings and wishes. We also highly recommend naming a secondary person to all of the aforementioned positions in case the primary person is unable to assist you or your estate or receive your assets.
4. Adjust Tax Withholdings
Now is a great time to review your tax return and determine if you’re comfortable with the refund you received or payment you owed when you filed. If you’d like to have a smaller or larger refund or lower your tax payment at tax filing, adjust your income tax withholding by filing an updated W-4 with your employer or making quarterly estimated payments throughout the year. As a starting point, the fewer withholding allowances you claim, the more withholding the government will take from your paycheck.
5. Update Insurance Coverage
And I’m talking about all insurance coverage. Here are several questions to review each year:
- Did you purchase any jewelry, art, golf carts, etc. that you haven’t added to your policy?
- Did you sell anything that you’re still paying to cover?
- Should your children have their own auto policies?
- Are you eligible for any home or auto insurance discounts or does it make sense to shop out your home and auto insurance?
- Does it makes sense to increase or decrease your life insurance coverage?
- Is now a good time to look into long-term care insurance?
- Do you have enough disability insurance?
6. Debt Refinancing or Pay Down
If your current cash savings is higher than 3 to 6 months of your monthly expenses and you have interest-bearing debt, you may want to consider using the extra cash on hand to pay down any high-interest loans. To save additional cash going forward, you also may want to look into refinancing options or debt consolidation that provide lower interest rates.
7. Account Consolidation
Some people tend to window shop with their finances (constantly looking for the best rates or an array of investment options) while others prefer not to have all of their savings and investment funds at one institution (and put all of their eggs in one basket). Whichever the case, it’s often more helpful to consolidate your accounts to one or two financial institutions. This can reduce the amount of investment statements or tax documents you receive, decrease the number of logins you must remember, and help reduce your overall investment and finance costs by minimizing administrative and trading costs.
8. Create a Personal Finance Binder
This next tip may sound a bit “old school,” but in a worst-case scenario, it can be one of the most helpful tools for your loved ones. If something happens to you, you can provide them with a clear picture of who to contact and what assets are outstanding by creating a personal finance binder or box that contains:
- List of personal and professional contacts (e.g., emergency contact, primary care doctor, executor or trustee, attorney, financial advisor, CPA, insurance agent)
- Most recent tax return
- Most recent investment statements
- Most recent insurance declaration pages
- List of medications
- Most recent home or auto warranties or improvements
- Long-term care plan
- Estate planning documents
Keep this information in a safe location and ensure that your spouse and executor or trustee knows where to find it.
9. Meet with a Financial Advisor
Now is a great time to schedule a review with your financial advisor or to start thinking about your next financial planning meeting. Your advisor should review your current investment accounts to make sure you’re invested at the appropriate risk level for your goals and recommend any changes necessary to realign your investments. As you work toward the other financial spring cleaning tips we’ve mentioned, your advisor also should be able to answer any questions you have about them.
10. Review Your Financial Goals
Although our clients come to see us to review their investments and savings goals, their goals often are vague. Reevaluate your short- and long-term goals annually and assess the progress you’re making. When appropriate, update them with your financial advisor.
Here are a few questions to think about each year as you consider your goals (be sure to write your goals down):
- Do you anticipate staying in your current career or do you think you’d be happier in another field?
- Do you think you’d want to work part-time in retirement if you really enjoyed the work?
- What types of activities do you to do during your retirement?
- Do you want to fully pay for your children’s education costs?
- Would you prefer to leave money to your family, charitable organizations, or both?
- Are you interested in making gifts to family members or charitable organizations now?
- What are the five most important things to you?
- Do you feel as though you have enough time to enjoy those things?
- If you had an extra hour in each day, what would you do with it?
While this list may seem daunting, it will help produce a clear idea about your current financial life and enable you to work towards the financial goals that are most important to you. Also, don’t forget to review these items with your Redwood Financial Advisor or to ask for help with your financial spring cleaning if you need it.
