Spring cleaning your house includes tasks such as scrubbing baseboards, moving furniture and identifying unwanted items to get rid of, like clothes, shoes, and toys. After a deep clean, your home smells like lemon, glass glistens, and the walls no longer sport fingerprints and stains from the past.
Spring cleaning your finances can offer the same feeling of renewal. You review each area of your financial life and find places that need cleaning and modifications. Actions often include getting rid of expenses that have no value, and ensuring you spend and invest the income with efficiency. Much like decluttering your home, deep cleaning your finances each year provides a lot of financial value.
When spring cleaning finances address the following:
Carefully Evaluate Current Spending
Eliminate expenses with little or no value to free up money for other financial priorities. Review automatic drafts and ensure you only pay for services you use. Then do a line by line audit on bills such as your cell phone and satellite TV bill. Companies like Bill Fixers can comb bills for savings on your behalf.
When you tally up savings, earmark it for a specific purpose to make the most of your savings.
Compare Goals with Investment Portfolio
Evaluate your investment portfolio and ensure your strategies align with current goals. Over time circumstances and financial priorities will change. Updating your investments to reflect those changes will keep you on track.
An investment review should consider diversification, time to withdrawal, and risk tolerance. Couples should match up investment strategies across portfolios, so they complement each other and work toward the same goals.
In non-retirement accounts, you might take appropriate steps to minimize taxes. A close look at your investment portfolio could result in adjusting investments and selling off low-performers. Funds’ sold within a tax-preferred account will not experience immediate tax consequences. Selling a position held more than 12 months would typically result in lower taxes, at the capital gains rate. Investments held less than 12 months pay taxes as ordinary income.
In some cases, you can use investment losses to offset gains earned in the same year. A tax advisor can help you sort out the tax implications of an investment sale.
A review of bank and investment statements can lead to combining accounts to simplify financial tracking. It is more difficult to keep up with multiple accounts. In many cases, consolidation with one company will give you a clearer picture of your financial wellbeing. However, there are times, when it is best to keep accounts with multiple companies. For example, if you tend to tap into savings, having money online or with a separate company can reduce the temptation to spend money earmarked for emergencies.
You can roll over a 401K from a previous employer into an IRA, at any time. The IRS restricts IRA to IRA rollover to one per 12-month period.
Investment accounts and insurance policies give you the ability to name a beneficiary, which you should keep up to date.
Check your Birthday for Qualifying Benchmarks
Retirement Accounts: Most retirement accounts require you to leave funds in place until reaching 59 ½. At that point, you can begin taking penalty-free withdrawals.
Health Insurance: Reaching 65 qualifies you for Medicare health insurance. Delaying sign-up can result in penalties.
Social Security becomes available as early as age 62. However, receiving early payments will result in a significant reduction in payments. You receive a full payout at age 66 or 67, depending on your year of birth. Further delaying payment until 70 will provide an 8% payment bonus for each year you wait, up to age 70.
Required minimum distributions (RMDs) begin at age 70 ½. The US federal government requires annual RMDs from traditional IRAs or retirement plans. In the year you reach 70 ½, you must begin taking an RMD no later than April 1st. If you do not take the required distribution by December 31, you could face a 50% tax penalty. Double distribution only applies to your first year.
Review Insurance Policies
You purchase insurance to take care of the “what ifs” in life. Over buying can cost you money and underinsuring can leave you with major financial outlays in the event of an unexpected occurrence.
Policies you might benefit from include: life, disability, auto, home, and health. Consider what the policy covers in relation to what you need and make any necessary adjustments. For example, a completed renovation could increase the home’s value, leaving you underinsured. An umbrella policy could save you money by combining coverages. Also consider riders, which address specific needs?
Update Your Estate Plan
Wills and trusts should receive an annual review. A new child, a child leaving home, marriage, divorce, or other significant change could impact the current plans you have in place. You should also update power of attorneys or medical treatment directives.
Ensure executors and beneficiaries are in place according to your wishes.
Organize financial records and keep both a physical and electronic copy with a cloud-based service rather than directly on your computer. In the event of an emergency, loved ones might not have access to electronic files.
Experts recommend keeping bills for one year. Keep tax returns, bank statements, investments, canceled checks, sales receipts, and paid off loans for seven years.
Other important papers to store safely include medical history, retirement documents, birth certificate, social security card, divorce decrees, wills, military discharge, marriage, and death certificates.
Maintain vehicle titles, home loan documents, and insurance policies as long as they are valid. Shred unneeded documents, recipes, and bills.
Review your credit score and report at least annually. The major credit scoring companies include FICO and Vantage Score. The three major credit bureaus, are Equifax, Experian, and Trans Union. Correct any mistakes immediately.
Video and Photograph Your Home
Document your possessions through video or photographs. Annually updating images will ensure you get credit for new purchases. Simply walk around each room in your house and get footage of what you own. Capture close-up images, brand names, and serial numbers for more expensive items. You can also preserve receipts in the same manner. Print or upload the file to cloud-based storage for secure access if you lose your computer or phone. Images and video will provide the insurance company with proper information to support a claim for destroyed items.
Financial spring cleaning can safeguard your finances for the upcoming year. You will have more security and the peace of mind, knowing your financial house is in order. The process can also highlight gaps you can address in the upcoming year.
If you are burdened with high amounts of credit card debt and are struggling to make your payments, or you’re just not seeing your balances go down, call Timberline Financial today for a free financial analysis.
Our team of highly skilled professionals will evaluate your current situation to see if you may qualify for one of our debt relief programs. You don’t have to struggle with high-interest credit card debt any longer.