Spring Cleaning Your Finances
By: Catalyst Wealth Management
March 21, 2022
Every year, you spring clean your home and maybe even your wardrobe, but what about your finances? Spring is a great time to revisit your financial accounts, figure out where you stand, and change or create strategies to reach your financial goals.
As you evaluate your needs for spring cleaning your finances, here are a few areas to focus on.
Investments
Investments are often a set-it-and-forget-it task in your financial life, but they do deserve evaluation now and again. Once a year is a great time to come back and see how your investments are doing, if your allocation is still on track to reaching your financial goals, and to determine if any of your goals have changed.
This is a great time to think about your risk tolerance. How much has it changed? Let’s look at retirement accounts, as an example. When you’re in your 20s and 30s you have a high-risk tolerance and can invest aggressively. As you get closer to retirement age, though, your risk tolerance drops, and you should cut back to less volatile investments with more consistent returns.
Don’t forget to revisit your net worth and cash flow too. Do you find that you have more money lying around and you could increase your investments? This is a great time to ramp things up and make more investments.
Taxes
No one likes thinking about tax season, but if you prepare yourself, you can reduce your tax liabilities and plan for the future, even as far as into retirement.
First, look at your tax situation. Has it changed? Did you get married or add dependents? Did your income increase or decrease and now you’re in a different tax bracket? Did you become self-employed or start a side gig and could take advantage of tax deductions?
This is also a great time to reevaluate your retirement accounts. Are you maxing out your 401K contributions to get your employer match? Have you opened and contributed to an IRA?
What about retirement, have you thought about your required minimum distributions and how they might affect your tax liabilities during retirement? Now is a great time to adjust accordingly.
Insurance
Finally, look at your insurance situation. No one wants to be insurance poor, but it’s always best to plan for the worst too. Insurance policies you should pay attention to and consider include:
- Car insurance – Think about your coverage amounts. If you have an older car, are you paying for too much insurance? Your car might not be worth enough to pay the high rates you’re paying.
- Home insurance – If you own a home, you’ll need homeowner’s insurance, but make sure your coverage is at least as much as your home’s value or you have replacement cost coverage.
- Health insurance – If you work for yourself or are retired, make sure you’re taking care of your insurance needs. If you work for someone and have group coverage, reevaluate your options at open enrollment time to make sure you have the policy best suited for you.
- Life insurance – If you have a family, have large obligations, or have others that would financially suffer upon your passing, consider buying life insurance. Term life insurance can be good for those with immediate needs, like a mortgage or supporting kids through college, and whole life insurance is good for someone that needs somewhere else to invest money after maxing out all other tax-advantaged accounts.
Spring is a great time to revisit your finances and do a little ‘spring cleaning.’ Take a little time this month to brush up on where you stand, make plans for the future, and ensure your financial decisions right now are on track to helping you achieve your goals.
