We’re only one week into 2017 and, if you’re anything like me, you’ve already grown tired of the New Year’s Resolution blog posts and social media overshares. While I’m not against the “New Year, New You” resolve, I worry that it’s too broad a goal to actually gain any real traction -- at least in a year's time. That’s why, instead of convincing you to make a complete “financial 180” -- I just want you to focus on something simple: cleaning up.
Mom’s always tell their kids to clean their rooms! It’s kind of our “thing”. But why do we do it? Well, for starters, it’s our job. In fact, I’m sure it’s written down somewhere in the “Parenting Handbook” that you’re given when you have a child -- Ha! In all seriousness, teaching our kids how to keep their stuff in order on a micro level, puts important deposits in their bank of skills that will follow them into adulthood.
I say all of this knowing full-well that kids don’t really care if their rooms are clean or not. As long as there is a place for them to lay their head among the sea of toys and clothes, they’re generally okay. That is, until they can’t find something they’re really looking for that it becomes a problem.
Sometimes as adults, we’re not much different. As long as our financial “mess” doesn’t affect our day-to-day lives, we don’t give much thought to the inherent problems lying right below the surface of our “Instagram worthy” lives.
As a financial planner, I want you to clean up your financial house. Here are the top 4 reasons why.
Find Your Things
We have all misplaced our car keys. Why? Because we set them down somewhere they didn’t belong. I've often had to call my cell phone to locate it. Same reason.
A clean financial house means that you can find things when you need them. A retirement statement, last year’s taxes, the checkbook, all need a home. But with so much information in so many different places, it can be difficult.
Start by taking inventory of what financial documents you have. Be sure to include any financial information that you have on your computer, random drawers at home, and even in the safe deposit box at your bank.
Here are a few examples of the type of information you should be looking for:
Bank accounts: (checkbook, checking/savings account statements, etc.)
Investment accounts: (brokerage account numbers and statements)
Retirement Accounts: (401(k), 403(b), Roth or Traditional IRA, Annuities, etc.)
Education Accounts: (529 Plan information, Coverdell ESAs, etc.)
Loans: (Mortgage, Auto, Student, Personal)
Insurance: (Health, Homeowners, Life, Car, Disability)
Estate Documents: (Wills, Estate Plans, etc)
Doing a financial inventory will help provide the peace of mind that you will be able to quickly access a complete picture of your financial situation, in the event you ever need it. I recommend doing a financial inventory at least annually, or anytime you have a major life event (birth/death in the family, purchase a new home, start/buy/sell a business, etc.)
In addition, your financial inventory will also come in handy for creating a will or estate plan.
Do you know what stepping on a Lego feels like? It hurts like hell! The same thing happens if your financial house is out of order. Being organized is a safety issue. How confident are you that none of your personal information has been compromised?
If your can’t say with 100% certainty that you’re covered, then chances are you probably leaving yourself at risk. To put this into context, nearly 19 people become victims of identity theft every minute. Based on a quick calculation, that’s approximately 10 million people that experience some form of identity theft on an annual basis -- or 7 percent of the population over 16 years old.
If you were to become part of that statistic, I’m sure that would hurt more than the Lego.
To help keep you, and your finances safe, you should carve out some time to follow the steps below to protect your identity.
- Check your credit report
- Review your passwords and update them frequently
- Monitor what you share online
- Secure sensitive personal and financial documents (including information on cell phones & tablets
- Consider subscribing to an identity theft service (ex: LifeLock, ID Shield)
Starvation and Disease
Messy spaces are magnets for disease and your finances aren’t immune.
Are your savings anemic? Is your budget bloated? What if your spending is cancerous? You need to be organized so you can track where your money goes and keep a healthy budget. According to Investopedia, there are 8 Steps to an Organized Financial Life.
- Pull Out Your Budget at Least Once Per Month...
- Use Financial Software...
- Have One Place for Bills...
- Open Bills and Pay Them the Same Day You Receive Them...
- Have a Checklist for Bills You Are Expecting...
- Consult with Anyone with Whom You Share Accounts...
- Verify that Your Paycheck is Direct Deposited...
- Have Two Bank Accounts.
Money issues related to lack of organization are one of the easiest financial problems to fix. And while you don’t have to use all of the tips listed above, try to find an organizational system that works for you and one that you will stick to month after month.
My kids will occasionally leave food in their rooms. This is what attracts bugs and other small critters. When that happens, they run out of their rooms and call me...you know, because apparently I am the only one in my house that can squash a bug.
If your finances leave you only crumbs and your savings are scary, you might be apt to run away. But that doesn’t fix the issue. Sometimes you have to jump in with bug spray and disinfectant, and give your finances a good cleaning. Keeping on top of your financial cleaning will prevent those cockroach overdraft fees, humpback cricket late fees, and the hidden bed bug mutual fund fees.
So during the next snow day or holiday, get out your file folders and stickers, your shredder and computer and start putting your financial papers in order.
Pamela J. Horack, CFP® of Pathfinder Planning LLC provides personal financial planning advice and asset management for a simple fee to young adults and working families in North and South Carolina through group classes, one-on-one planning, and ongoing advice.