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Spring Clean Your Finances

The traditional ritual of spring cleaning can take on a new meaning this year. Just as your home doesn’t declutter itself, your finances don’t either. Northwest Mutual, an American financial institution, commissions an annual survey to explore Americans’ attitudes and behaviors around money and personal finances. Even prior to the pandemic, they found about one in three households was within three missed paychecks of borrowing money or skipping bill payments. I share this to remind you not to wait too long before breaking out your financial dustpan and getting things cleaned up.

Here are six tips to discuss with your family and financial advisor as you spring clean your financial house:

  1. Realign your financial and investment plans. Changes in your situation, goals and outlooks may require financial plan updates. And investment plan changes may be prudent from shifting investment, tax and policy landscapes. Lower expected returns and heightened volatility may warrant diversification into foreign investments, small or mid-caps, “value,” and adjusting for higher interest rates and potential inflation.
  2. Increase your income and savings. Easier said than done, but you can make plans for growth. Higher incomes come from job skill enhancement, training, education, and side hustles. And no fancy investment strategy will offset inadequate savings. Revisit your budget and find additional savings. And if you refinanced your mortgage, think twice about plowing the savings into a new truck or kitchen. The average refinance generated a $400 per month savings. Investing that for 30 years at 6% return would accumulate to about $404,000 which is equivalent to about $16,000 a year in retirement.
  3. Get your risk tolerance right. Risk tolerance is a nebulous term, is hard to measure and changes over time. What is important is how you are going to react when the next market meltdown occurs. Can you stay the course? Now’s the time to adjust when the markets are up rather than trying to switch horses midstream.
  4. Check your insurance. Do you have sufficient coverage and is it competitively priced? Your house value and net worth may have risen. Are your homeowner’s and umbrella liability policies due for a review? Are you and your family adequately covered for life and disability insurance? What about health insurance? Talk to your agent and get competitive bids.
  5. Update your estate plan. Changes in your health, family and financial conditions warrant reviews and updates of estate plans, trustee designations, powers of attorney to name a few. Are beneficiary designations up to date and living trusts funded? Would it be more tax-efficient to name your charities as beneficiaries of your IRAs and leave your home to your kids with its stepped-up cost basis (if tax laws remain)?
  6. Prepare to withdraw from 529 plans. Congratulations if you have a kid or grandkid graduating this spring, and better yet if you had a dedicated savings plan. Requesting checks is a little like retirement where you get to enjoy the fruits of your labor and dedicated savings. Maybe ask the young graduate to show you a copy of the receipts and their grade reports if they expect to see more checks.

The important things in life don’t often come without a little work. Your financial house doesn’t have to be spotless, but planning and assistance go a long way in getting things in order. May you secure your future wisely and have sage advice.

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