Do A Financial Spring Cleaning

I'm the operator of my pocket calculatorToday is a lazy Sunday in the early spring, the first authentic lazy Sunday I’ve had in a long while. The taxes are done and now it’s time for a financial spring cleaning. What’s a financial spring cleaning, you ask? For me, it’s a post tax filing tradition in which I go through all of my finances and make the necessary decisions and actions to minimize the waste I keep

Go through your files and get rid of unneeded stuff Once you’ve filed your 2006 taxes, you only need to keep supporting documents for the previous seven years. So, everything dated prior to January 1, 1999 (except for old returns, which are always worth keeping) can bite the dust. Get out the paper shredder and start eliminating the old stuff.

Research any investments you might want to consider If you’re like me, you save prospectuses and printouts on investments that you may want to look at, and your investment firms also send you prospectuses on what you’re already invested in as well as ones that you request and may interest you. Take a few hours and read through them – I wrote a guide on how to read a mutual fund prospectus – and decide if any are worth your time to begin investing in, or if something you’re already investing in has changed direction and you want out.

Rebalance your portfolio Unless you’re completely getting out of a particular fund, rebalancing your portfolio shouldn’t mean selling any asset. Instead, it just means that you’re deciding where to put your investments for the next several months to a year. Let’s say you have committed yourself to 50% in Fund A, 25% in Fund B, and 25% in Fund C. Over the last year, that’s how you’ve put money in them, but Fund C has done really well lately, leaving you with 47% in Fund A, 23% in Fund B, and 30% in Fund C. This means that you should move things so that you’re putting, say, 60% in Fund A, 30% in Fund B, and 10% in Fund C for a while, so that after some time your overall investment moves back to where you want it. Don’t get greedy and start dumping everything into Fund C just because of a strong short run with it, though; the reason you have a diversified portfolio is to protect against risk, and by jumping on a short term bandwagon, you’re adding risk to your portfolio by putting more money into something volatile.

Review your spending for the year so far and see if you can increase your automatic savings and investment deposits. I usually do this in April and October, and almost every April, I discover that I can put more away than I was, mostly due to annual raises that occurred in the December-January timeframe. I usually channel it into my emergency fund until October, at which point I look at redirecting some of that emergency fund depositing into an investment.

Count up your loose change and bills and prepare it for exchange and deposit I keep a giant jar of loose change, loose dollar bills, and so on. By tossing them in there when I acquire them, it keeps me from spending it on something frivolous. Thus, every six months, I usually have some amount of money stored up and I prepare it for deposit. For me, this means preparing it to the specifications of my bank, as they accept change if it’s in a clean container. I also count it just to make sure it matches closely with what the bank counter says. Then, I stop by the bank sometime in the next few days and cash it all in as a deposit into my checking account.

Do some long term planning. I check to make sure I’m still on pace to meet my goals for my son’s college education and also for retirement. This year, it also means setting up a 529 college savings plan for my second child and setting up an automatic investment plan for the coming baby (this is actually what I’m doing with my increased investment this year, from that earlier step). It basically identically matches what I’ve done for my first son. I live in Iowa, which has one of the best 529 plans in the country (managed by Vanguard – another plus in my book). As for retirement, I check where I was six months ago versus now and model that out to retirement; if it’s looking low, I try to get more money in – and if it’s looking high, I smile and wait.

For me, these activities will eat up most of a Sunday, but at the end of the day, I feel really good about my financial state. Take a lazy day sometime and do some financial spring cleaning – it will leave you feeling more secure as well.

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One thought on “Do A Financial Spring Cleaning

  1. Tim says:

    good list. it’s good to have some schedule to reviewing your overall finances. if not to clean things up, but to get some bigger picture perspective which may be lost during the day-to-day and month-to-month budgeting.

    if you are a pack rat, i highly recommend investing in a scanner and an external hard drive or disks to burn those files onto rather than keeping paper copy. saves space and is less of a fire hazard. we don’t keep hard copy anymore, we scan and store the files. we backup onto disks for important files in case something gets corrupted.

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