Spring cleaning isn't just about clearing the flower bed of broken tree limbs, reorganizing the garage or cleaning out the kitchen drawer. Financial spring cleaning is about getting your money house in order.
To live your best financial life, you need to spiffy up all things related to your money.
That means doing a deep dive into all your accounts, from checking to credit cards to retirement savings plans. There are a few key big-picture things you'll want to accomplish when financial spring cleaning.
Financial Spring Cleaning Tips
Start by identifying where all your dead money is hidden. That might be a pile of cash earning 0% interest or a zombie 401(k) from an old job that you haven't looked at since the 2008 financial crisis.
Next, figure out what financial mistakes need fixing. Did you really mean to invest in that underperforming stock fund with an industry-high expense ratio north of 2%?
Assess where the potential land mines are in your financial life. Maybe it's time to get flood insurance on your summer beach cottage or check to see if you really did update the beneficiary form on your six-figure IRA.
Lastly a spring financial cleaning refresh is a must-do. When it comes to money-related matters, one thing that is constant is change, says Tracey Dunlap, a financial wellness expert and customer experience executive at Jenius Bank.
"You have to revisit where you're at, look at where you may be falling short or where you have an opportunity to improve," said Dunlap.
Financial Spring Cleaning: Tackle Chaos
There's a downside to having your financial affairs in chaos, adds Dunlap. You could be missing out on opportunities to clean up the dirty little secrets in your financial life.
"If you're not doing spring cleaning, you're not really looking at the chance to potentially up your 401(k) or cancel a subscription or revisit some of the things, like your spending and savings behavior, that you should on a regular basis," said Dunlap.
Here are some "greatest hits" of financial spring cleaning tips.
Conduct A Beneficiary Review
You worked your whole life to amass your wealth. To ensure that your money and possessions go to the right person or people — and not the government or your ex-wife that's been out of your life for years — make sure the beneficiaries on all your financial accounts match your current wishes, says Daniel Razvi, senior partner and chief operating officer at Higher Ground Financial Group.
"Even if you have a will or trust in place, the beneficiary designations trump everything," said Razvi.
So, go online or pick up the phone to make sure your beneficiaries are updated properly.
Financial Spring Cleaning Your Cash Accounts
No, the Federal Reserve has not started cutting interest rates yet. That means cash is still earning real money. In fact, you can still get as much as 5.25% on a high-yield savings account or money market account, according to Bankrate.
"If you have more than a couple of months' worth of expenses sitting in cash reserves, see if you can increase the interest you are earning," Razvi said.
Why leave money on the table because of inertia. "Keeping too much money in a no- or low-yielding checking account can be costly," said James Sahagian, managing director of Ramapo Wealth Advisors at Steward Partners.
Size Up High-Fee Accounts
The more you pay in fees for checking or brokerage accounts or investments like mutual funds, the less of your money you have working for you. So, check what the average fees are on your accounts, and make sure you're not overpaying.
"You should audit your investments to be sure the fees you are paying are worth the value you are receiving," said Razvi. "Many times, you can accomplish something similar with a significantly lower fee."
For example, say you want exposure to large-cap stocks. You're better off buying an index fund or ETF that tracks the S&P 500 that carries an expense ratio lower than 0.05%, rather than paying 1% or more for an actively managed fund that's just mimicking the benchmark stock index but charging a premium to do so.
Consider this example from Vanguard. Let's assume you invest $50,000 and expect an annual return of 6%. There is a major difference in what you'll pay in fees between, say, the average Vanguard expense ratio of 0.09% and the industry average of 0.54%. In fact, you could save $3,218 over 10 years owning a fund with the lower expense ratio, according to Vanguard.
Organize Your Financial Documents
There's nothing worse than not having documents at your fingertips that you might need to calculate your cost basis on a fund you bought years ago or to pass on to your CPA at tax time. That's why Sahagian recommends organizing your financial documents by filling out what he calls a "financial inventory worksheet."
"This includes documenting locations of important documents like wills, powers of attorney, health care proxies, financial accounts, insurance policies, passwords and critical contacts such as CPAs, attorneys and financial advisors," said Sahagian.
Dial In On Debts While Financial Spring Cleaning
In an era of higher-for-longer interest rates, what you're paying on borrowed money today versus a few years ago might be a lot higher, warns Sahagian. Now's the time to do an inventory of your debt to see which creditors or types of debt are costing more than others.
The next step is to come up with a plan to pay down your debt. Say you're carrying $10,000 dollars in debt on two different credit cards charging 21% interest, for example. But you have a home equity line of credit with a zero balance that charges just 9%. You should seriously consider consolidating your credit card debt into the lower rate HELOC. Another way to cleanse your dirty spending habit is to go line by line when your checking account statement hits and find places where you can save money. Then divert that freed-up cash to pay off debt.
"The best way to get out of debt is to develop a debt-payoff plan, and stick to it," said Sahagian.
Inspect Insurance Policies
It's always best to be prepared for the unexpected. That means making sure you're properly insured in the event of your death, or if your home is flooded by a raging river, or you get in an accident and your car gets totaled.
"You should review insurance policies at least annually," said Sahagian. When measuring risk, plan for the worst and hope for the best. So, even if your home isn't in a designated flood plain, for example, but your neighborhood consistently is inundated with water during drenching downpours, you might consider getting flood coverage.
Prioritize Retirement Planning
Does your 401(k) need a tuneup? You won't know unless you look under the hood. You must see how much you're socking away each paycheck and if you're investments are performing well and are still a good fit for your financial goals.
If your asset mix is out of whack, or your savings rate is too low, it's time to freshen things up. "Fine-tune as necessary," said Yuval Shuminer, founder and CEO of budgeting app Piere. Her recommendation: Target 15% to 20% of your annual pay for retirement savings.
Reevaluate Your Budget In Financial Spring Cleaning
With the first quarter of the year now in the rearview mirror, it's a good time to gauge if you're a budget lover or budget buster. There's a lot to learn from doing a deep dive into what you're spending your money on.
"Analyze spending trends, assess your priorities in life, and plan ahead to ensure healthy fiscal behaviors," said Shuminer.
One more thing. Spring, a time of year known for rebirth and renewed optimism as warmer weather and longer days approach, is a good time to put the grayness of winter and financial clouds behind you, says Shuminer.
"It's important to kick off your financial spring cleaning with a sense of optimism," said Shuminer. "It's a time to look forward and make sure your spending and savings are aligned with your priorities and values, rather than (focusing) on went wrong in the past."
