When it comes to thinking about your finances, some people feel intimidated by sophisticated or advanced financial topics, jargon, and the array of options available. Have you ever felt this way? If you have, be reminded, “simplification is the ultimate sophistication”.
As warmer weather arrives and households tackle spring cleaning to-dos, it is the perfect time to metaphorically “clean house” and bring a simplified approach to your finances. Simplifying and bringing your finances back to the basics can be an act of sophistication. The process of organizing your finances can also help in creating a financial plan to position you to meet some of your short-term or intermediate goals, as well as your long-term financial goals like retirement.
When it comes to “spring cleaning” your finances, here are some ideas for you to consider:
Tip #1: Review your statements.
Gather all of your latest financial statements. This can include statements for bank accounts, investment accounts, credit cards, and retirement savings, as well as insurance policies such as life and disability. This process of gathering all of your latest financial statements can help give you a complete view of your finances.
Tip #2: Organize files.
Once you have collected your latest financial statements, it is time to establish an organized filing system. If you receive electronic statements, it would be a good idea to download, label, and file these items on your computer. You may also consider uploading them to the Cloud if you prefer. For hard copy statements, file the last three to four statements. If you are still using hard copies of statements, this may be a good time to consider moving to paperless statements or you can scan them and file electronically to cut down on clutter.
Tip #3: Consolidate accounts.
Over the years, you may have accumulated multiple accounts like 401(k)s from previous employers, IRAs, bank accounts or credits cards. All this financial clutter can be overwhelming. Consider consolidating financial and retirement accounts and reducing the number of credit cards.
When it comes to reducing the number of credit cards you have, ideally having just two credit cards will help you better manage expenses and debts. I recommend clients keep cards that they have had for the longest amount of time, as those credit cards have the most credit history attached to them. Also, look for cards that offer reward or point programs that are valuable to you. Accounts may have annual maintenance fees, and the more accounts you have, the harder it is to monitor fees and charges, as well as overall expenses. Having many credit cards can actually negatively impact your credit score, so resist the urge to get a discount when making purchases by opening those store accounts.
Tip #4: Manage Cash Flow.
Finally, get your arms around your monthly cash flow. Doing a deeper dive into credit card spending can help you see exactly where you are spending money and how you could make some tweaks moving forward. Once you have begun tracking your monthly cash flow, it will make it easier to see where you may be throwing money out the window. I generally recommend tracking your expenses and spending for three months. After that time, take a look and begin to think about what expenses are for “needs” versus “wants” and where you may be paying for “bells and whistles” when you only use the basic services.
If you are not using any online tools for money management or for tracking your spending, this may be a great time to get started using one. There are a number of comprehensive tools available online at no cost. I like to recommend Mint.com to my clients and other Compass Financial Advisors have had great experiences with Quicken as well.
At Compass Financial Services, our Des Moines Financial Advisors believe that understanding your holistic financial situation is worth the effort and time it takes to tackle these “spring-cleaning” items. This process ultimately helps you organize your finances and see whether you are on track for long-term financial goals such as retirement, and it will help you as you work through short-term or intermediate goals along the way. It can also be a good reminder to consider bumping up contributions to help with retirement readiness or make sure your life insurance coverage is enough to protect your family.
Having this information organized and readily available will not only make updating your Net Worth Statement each year a breeze, it will also simplify the process of updating your existing financial plan or getting started on your first financial plan. If you would like to talk to a member of our team or contact us about our financial planning services or updating your existing financial plan, we would love to help. Send us a message through our website or drop a line to your Compass Financial Advisor today!