An essential habit of financially successful people is that they spend time on their finances. Even the most financially sophisticated can benefit from some financial spring cleaning — financial security requires attention, planning, discipline and work.
Effective financial management begins with long- and short-term financial goals and a realistic budget to support these goals. Periodically review your goals and budget to ensure they are aligned with your long-term aspirations. Review your spending habits and identify areas where you could save money to reach your financial goals.
Shore up your emergency fund to be sure you have at least four months of expenses in a bank or money market account. Establish a plan to pay off high-interest debt.
Do some spring cleaning of your investments by reviewing your asset allocation to ensure it still meets your financial goals. Rebalance your portfolio to stay on track with your asset allocation. If you are retired and withdrawing money from your portfolio for living expenses, be sure you have adequate reserves outside the market to meet your needs for at least five years. It is critical to keep your investments on target to avoid the need or temptation to sell stock during a market correction.
Review and increase contributions to your 401k plan if your income has increased or you have reduced spending. If applicable, the deadline for contributions to a Roth IRA or self-employed retirement plan is April 18.
Spring cleaning also should include closing unused accounts and consolidating investment accounts. This will make it easier to keep track of your assets and minimize identity theft. Many investors have several IRA accounts and 401k plans from previous employers that can be consolidated into a single rollover IRA.
If you have a high-deductible health insurance plan, maximize contributions to your Health Savings Account.
If you have had a major change in income, adjust your tax withholding or estimated taxes. Alert your tax preparer of changes to your income so he or she can provide recommendations on tax withholding and estimated taxes.
Financial spring cleaning also should include an annual review of your credit reports with all three credit bureaus and home title records with your county clerk and recorder.
Periodically, review your estate planning documents. Review beneficiary designations, your will, health power of attorney, living will, financial power of attorney and HIPAA (Health Insurance Portability and Accountability Act of 1996) authorization to ensure all still represent your wishes.
Every three years, consider performing an insurance review to ensure you have adequate property and casualty insurance with reasonable deductibles. Your home might be underinsured due to recent escalation in home prices and building costs. You should also evaluate your disability insurance, umbrella liability insurance, health insurance and term life insurance, if you have dependents. You might want to weigh the pros and cons of long-term care insurance. Compare prices on all your policies to ensure your premiums are reasonable.
Jane Young is fee-only certified financial planner and can be reached at firstname.lastname@example.org.
Jane Young is fee-only certified financial planner and can be reached at email@example.com