It’s that time of year to clean up the aftermath of the holidays and begin new resolutions. And while resolutions may include de-cluttering our homes and lives, it also can be an appropriate time to take a closer look at our finances.
“I’m big on cleaning up the clutter,” says Sue Coon, senior associate and financial adviser at Renaissance Financial Corporation. “And it can be overwhelming. Nobody wakes up in the morning and says, I think I’ll do some financial planning today—won’t that be fun! Well, that just doesn’t happen. But it’s a good idea to pull everything out, go through it piece by piece and question why you have each account. And question if your objectives are still the same as when you took out those accounts. Clutter of any type in your life doesn’t allow you to move forward.”
Another important step to getting your financial house in order is having a plan, according to Eric Mundwiller, a principal at Moneta Group. “The No. 1 most important action point is to have a plan—a plan that not only considers what you’ve done up until this point, but one that also projects forward,” he notes. “From the money management section, get your arms around your cash flow situation and what your spending policy is. Consider what you earn each year, where you are spending money and what is left over.”
Mundwiller notes that he sat down with his family and reviewed their cash flow last year. “It’s about coming up with more disposable income to provide for needs, or perhaps for current wants, but more important it’s input for a total financial plan working toward retirement,” he continues. “I think many households are now awakened to the fact that it’s up to them to manage their cash flows, debt levels and to get their financial house in order.”
When creating a financial plan, it also can be an opportune time to review credit cards, regarding balances and terms, Mundwiller says. “Understand the terms in order to determine how you can give up one for another,” he explains. “And understand what more reasonable options may exist in the marketplace to consolidate and obtain a more reasonable cash flow number to pay off that debt while maintaining the ability to save for retirement and your children’s education.”
Coon also suggests rolling any lingering 401(k)s from previous employers into an IRA. “When you have several 401(k)s out there, it’s hard to watch and manage all of them,” she says. “But if you roll them into an IRA, then you only have one piece to manage—and you have a universe of funds to pick and choose from, unlike a 401(k). It’s your money—you did a great job putting it away, so why not go out and find the best fund that you possibly can for it. And it’s a rollover, a nontaxable event going from one qualified plan to another.”
An additional aspect of obtaining good financial health is insurance, according to Kathy Peterson of Kathy Kilo Peterson Insurance Agency (State Farm). “Life insurance planning should be tailor-made to the specific family,” she explains. “I know there are a lot of calculators out there, but families need to consider how many children they have, what kind of income replacement is needed, and how much and what type of debt they have.”
With property, Peterson says it’s important to review assets and belongings after life events. “A marriage, the birth of a child, a change in your job or net worth all trigger possible needs for adjusting your insurance,” she says. “I always advise taking video of your personal possessions because if there is a large loss, it’s hard to remember what you had, and obviously, a video with you narrating from room to room is the perfect thing in the event of a claim. I also recommend looking at your personal liability umbrella policy because assets do fluctuate, and if you have recently added investment property or a boat, you will want to make sure that umbrella covers all your exposure.”