3 Ways to Spring Clean Your Finances
It's time to take out all your investments and try them on to see if they still fit.
Winter has come to an end, and spring cleaning season is here. Along with updating your wardrobe and cleaning out your garage, it’s also a good time to dust off your financial plan.
Here are my three tips for spring cleaning your finances.
1. Pare down.
Most people are hoarding investments, sticking as much as they can into their accounts without knowing what they’re buying and if it overlaps with what they already have. Just like spring is the time to start getting rid of all that household clutter, you should do the same with your investment strategy.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
First, evaluate what you own, where you hold it, and how you use it. Then, refer to both your short- and long-term financial goals — the allocations and the investments that you hold to accomplish each could look remarkably different. Maybe you’re building your emergency fund and saving up for a home renovation, but also need to consider how you’ll maintain a certain lifestyle in retirement in 30 years. If your investments are not helping you accomplish your goals, it’s time to kick them to the curb.
As an example, I once met with an investor who was proud of the fact that he had close to 45 different mutual funds, until I helped him discover that two-thirds of them were large-company stock funds and a quarter of them were from the same company. He mistakenly thought that having a high volume of investments meant he was practicing diversification, but it’s like he owned a toolbox with 45 screwdrivers and no other tools — not the best strategy.
2. Check the fit.
In the same way that you might go through your warmer-weather wardrobe and try on old clothes each spring, you need to try on your current allocation and make sure it still fits. Begin by reviewing your savings and total financial picture — this might include debt, investments, workplace plan savings, college savings for your kids, your Social Security strategies, health care savings plans and more. Does the long-term plan you built last year still fit?
I’ve met with new investors who have been using the same plan for up to 10 years! Just because it worked in the past doesn’t mean it still will this year. This can never be a set-it-on-the-shelf-and-forget-about-it sort of planning situation.
Determine the least amount of risk you must take on to reach your goals. From there, optimize your investments to achieve them. Oftentimes clients are convinced that they must be an aggressive investor if they want to successfully retire, but it may be possible to be a moderate investor and still have an incredibly high probability of success.
3. Embrace the new.
While everything in nature looks new in the springtime, the same concept should apply to your investing approach. Chances are you can increase your savings rate for 2018. Ideally you should aim to max out your 401(k) savings rate or at least contribute enough to take full advantage of the company match that is offered by your employer. But if that’s not doable, it is often a good rule of thumb to try to save 10% of your gross income.
One of my clients began saving just 4% of her income but promised herself that she’d continue to increase her savings by 1 percentage point each year, and it’s been exciting to see how proud she is when we review her accounts each year and see how much she’s accumulated with this approach. Even if you only save 1% for now and try to bump it up another percentage point each year — just start somewhere. The idea is to save as much as you can, for as long as you can.
These three steps are a great place to start. However, just as there is not a single style or size T-shirt, there is not one magical investment or off-the-shelf plan that makes sense for everyone. Depending on your current lifestyle and ability to save, your investments, trading strategies, tax-optimization strategies and longer-term retirement plans are going to be unique to your personal situation. As your life gets more complex and your financial needs change, you may benefit from professional help from an adviser.
The only way to take control of your own finances is to take action — there’s no one else who can do it for you. Follow these three steps to successfully clean up your financial picture this spring.
Certified Financial Planner Board of Standards Inc. owns the certification marks CFP® and CERTIFIED FINANCIAL PLANNER™ in the U.S., which it awards to individuals who successfully complete CFP® Board's initial and ongoing certification requirements.
©2018 Financial Engines Inc. Financial Engines is a registered trademark of Financial Engines Inc. All advisory services provided by Financial Engines Advisors L.L.C., a federally registered investment adviser and wholly owned subsidiary of Financial Engines Inc. Results are not guaranteed by Financial Engines or any other party. See https://financialengines.com/patent-information for patent information.
-
S&P 500 Tops 7,000, Fed Pauses Rate Cuts: Stock Market TodayInvestors, traders and speculators will probably have to wait until after Jerome Powell steps down for the next Fed rate cut.
-
The Met Opera May Sell Its Iconic Paintings. Is it a Good Investment?Buying the Marc Chagall murals would come with a big stipulation attached.
-
Do You Really Need All Those Phone Plan Perks?Unlimited data plans now come bundled with streaming, travel perks and device deals — but many people pay for extras they rarely use.
-
Today's Senior Living Communities Are Not Your Grandma's 'Old Folks' Home': An Expert Guide to Shopping for the Right FitSenior living facilities have improved and are as diverse as the people who inhabit them. Now, they're more than just a place to go — they're a place to grow.
-
3 Common Misconceptions About Working With a Financial PlannerThink financial planners are only for the wealthy and that AI can replace human advice? Nope. Even people with moderate wealth need professional advice.
-
Should You Consider Investing in the Quantum Computing Sector? This Investment Adviser Has Some SuggestionsInvestors interested in quantum computing could consider ETFs focused on cloud services enabling small businesses to use big technology.
-
I'm an Estate Planning Attorney: These Are the Estate Plan Details You Need to Discuss (And What to Keep Private)Gen Xers and Millennials would like to know if they're going to inherit (and how much), but Baby Boomers in general don't like to talk about money. What to do?
-
I'm a Financial Adviser: This Is How You Can Minimize the Damage of Bad Market Timing at RetirementPoor investment returns early in retirement on top of withdrawals can quickly drain your savings. The ideal plan helps prevent having to sell assets at a loss.
-
'You Owe Me a Refund': Readers Report Challenging Their Attorneys' BillsThe article about lawyers billing clients for hours of work that AI did in seconds generated quite a response. One law firm even called a staff meeting.
-
7 Questions to Help Kick Off an Estate Planning Talk With Your ParentsIt can be hard for aging parents to discuss estate plans — and for adult kids to broach the topic. Here are seven questions to get the conversation started
-
Down But Not Out: 4 Reasons Why the Dollar Remains the World HeavyweightThe dollar may have taken a beating lately, but it's unlikely to be overtaken as the leading reserve currency any time soon. What's behind its staying power?
