For many, spring cleaning is an annual event tied to maintenance and general up-keep of your home. Similarly, your finances deserve an annual cleaning ‘” one where you closely examine your assets, holdings and other related financial products, and make any necessary adjustments or changes. Mid-May, after the April 15 tax deadline has come and gone, is the perfect time to embrace financial spring cleaning, but any time is a good time to start a thorough examination of your finances.
After completing and filing your taxes, you probably have the most up-to-date grasp on your 2010 financial position, which will make it easier to examine your current holdings.
The first step is to check your insurance (auto, home, health and life) to see that it is up to date and the coverage is sufficient. Most people are underinsured. Consider using your tax refund, if you are fortunate enough to get one, to upgrade or adjust your insurance coverage as needed or add something you don’t currently have, such as earthquake insurance. Believe it or not, most people mistakenly believe earthquake damage is already covered under their homeowner’s policy. Sometimes, it is not.
Or, if you’re satisfied with your insurance, now is a good idea to take stock of any debts you may have accumulated during the past year and use your tax refund to pay down or eliminate this debt in part or in its entirety.
Peoples’ lives can change pretty dramatically over the course of just one or two years. Therefore, you need to make sure your financial situation reflects any changes in your personal situation. Did you get married? Have a child? Send a son or daughter to college? Get a new job? You get the picture.
Review your retirement plans, including your 401(k), along with your beneficiaries to make sure they are congruent with your trust arrangements or will.
Keep in mind that your 401 (k) isn’t just a separate asset all its own which can be left on “auto pilot”. If you have a financial advisor, he or she should regularly evaluate where your 401 (k) is allocated and make adjustments as necessary to keep it performing at an optimum level.
Finally, it’s a great idea to be prepared for natural disasters. One of the lessons we can take from the recent earthquake and follow-on tsunami that hit Japan is that we can’t be immune to concerns about our financial affairs in the unfortunate event of a major catastrophe. You’ll want to ensure that you have duplicate copies of important documents like trusts, wills, bank and retirement account statements, and other financial paperwork. These should all be kept in a secure location, and, if possible, entrusted to someone like an executor, guardian or trustee.
Another important preparation is to put aside enough cash for one to two months of expenses, and enough for six months in a savings or money market account.
If you have a sound financial plan and/or utilize the assistance of financial advisor to help you stay on top of these matters, then your financial spring cleaning may not be so extensive. If you don’t, these tips ‘” if you choose to use them ‘” will help you to better organize your financial life.
With a little effort and planning, it’s easy to prepare for challenges and the opportunities that the coming year will hold. Don’t miss out! Start that financial cleaning now.
Larry Palmer is a Financial Advisor with the Global Wealth Management Division of Morgan Stanley Smith Barney in Los Angeles. The information contained in this article is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. The strategies and/or investments referenced may not be suitable for all investors as the appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Investing involves risks and there is always the potential of losing money when you invest. The views expressed herein are those of the author and may not necessarily reflect the views of Morgan Stanley Smith Barney LLC, Member SIPC, or its affiliates.