Advertisement
retirement

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.

Advertisement - Article continues below

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?

Advertisement
Advertisement - Article continues below
Advertisement - Article continues below

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.

Advertisement - Article continues below

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.

Advertisement
Advertisement - Article continues below

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.

About the Author

Andy Smith, CFP®

Senior Vice President, Financial Planning, Financial Engines

Andy Smith is a CERTIFIED FINANCIAL PLANNER™ professional with Financial Engines and co-Host of Financial Engines' Investing Sense®. He has worked as a financial adviser for over 15 years and has helped thousands of investors navigate a variety of markets to achieve their long-term financial and retirement goals.

Advertisement

Most Popular

What Are the Income Tax Brackets for 2020 vs. 2019?
tax brackets

What Are the Income Tax Brackets for 2020 vs. 2019?

The IRS unveiled the 2020 tax brackets, and it's never too early to start planning to minimize your future tax bill.
June 20, 2020
Tax Changes and Key Amounts for the 2020 Tax Year
tax law

Tax Changes and Key Amounts for the 2020 Tax Year

Americans are facing a long list of tax changes for the 2020 tax year...and it's never too early to start thinking about next year's return.
June 22, 2020
10 Tax Breaks for the Middle Class
tax deductions

10 Tax Breaks for the Middle Class

Tax breaks aren't just for the rich. There are plenty of them that are only available to middle- and low-income Americans.
June 30, 2020

Recommended

Avoid Blindly Following Random Benchmarks on the Road to Retirement
retirement planning

Avoid Blindly Following Random Benchmarks on the Road to Retirement

Unless the benchmark is relevant to your personal plan, it could steer you into taking a wrong turn.
July 8, 2020
Where Should You Retire?
retirement planning

Where Should You Retire?

This week, our Your Money's Worth podcast host Ryan Ermey interviews co-host Sandy Block about her recent story about the best retirement destinations…
July 7, 2020
Find a Great Place to Retire
happy retirement

Find a Great Place to Retire

Our cities provide plenty of space to spread out without skimping on health care or other amenities.
July 2, 2020
Searching for the Perfect Place to Retire
Empty Nesters

Searching for the Perfect Place to Retire

We home in on two places with less traffic and lower costs. 
July 2, 2020