Cliché or not, there is something refreshing about the vernal equinox and the advent of spring, isn’t there? And yes, with the birds, flowers and warmth also comes a sense of optimism that often inspires us to get our proverbial house in order. So while you’re cleaning out the garage and wiping down the lawn chairs, here are seven categorical to-dos you can check off to streamline and improve your financial plan as well:
- CONDUCT A CASH FLOW AUDIT – If you maintain an accurate weekly budget, you shouldn’t need to balance your checking and savings accounts incessantly, but it’s a good idea to do it at least semi-regularly to ensure that the transactions that fall through the cracks don’t come back to bite you. If you don’t budget, consider relinquishing your self-deceiving notion that your household can be optimally run without its de facto Chief Financial Officer—you—doing his or her job.
- REVIEW YOUR LIFE INSURANCE NEEDS AND POLICIES – Have any big changes in life—a new family member, a new home, a new job—changed your life insurance needs? It’s not easy to talk about life insurance because it’s not easy to talk about death, but it’s important. Please don’t ignore it. Unless you make over $300,000 per year or have net worth over $3 million, the chances are that your life insurance needs will be best handled with term life insurance. If you don’t meet those thresholds and have whole life, variable life or universal life, you’re probably overpaying for less death benefit than your family needs.
- DO YOU HAVE/NEED DISABILITY INCOME OR LONG-TERM CARE INSURANCE? – If you’re in your 30s or 40s and haven’t asked the question, “Do I have enough/the right disability income insurance (DI) coverage?” you have lots of company; but you should absolutely consider insuring what is likely your biggest “asset” at this phase of life—the present value of your future income. If you’re in your 50s or 60s and have adequate emergency and retirement savings at that phase of life, consider focusing less on DI and more on long-term care insurance. Despite widespread misunderstanding, Medicare does not cover long-term care expenses past 100 days—and the care itself ain’t cheap.
- DON’T NEGLECT HOME AND AUTO INSURANCE – Save your household some money by reviewing your home and auto insurance. It’s the most neglected insurance because it is so commoditized. There are two ways to save money: First, take a look at your deductibles for comprehensive and collision. Are they below $500? If and only if the savings will be material and you have adequate emergency reserves, consider increasing deductibles to $1,000 or $2,000—thereby self-insuring the non-catastrophic risk and saving some money on premiums. Second, quote around to see if your rates are competitive. And if you don’t have an umbrella liability policy, spend some of your savings buying one. It’s one of the best values in insurance.
- CONSOLIDATE, CONSOLIDATE, CONSOLIDATE – One of the best ways to simplify your financial existence is to consolidate accounts to the greatest degree possible. Do you still bank with a big name, brick-and-mortar bank—why? If that question isn’t accompanied by a compelling answer, join those of us earning more interest and paying less in fees with fully-FDIC-insured online banks. If you have a higher-yielding checking account, you may not even have to worry about a savings account. Then consolidate your investment accounts: you don’t need more than one active 401k (or equivalent), Traditional IRA (likely housing your old 401ks) and Roth IRA for each spouse—as well as an individual or joint liquid, taxable brokerage account.
- UPDATE (OR INITIATE) YOUR ESTATE PLAN – I try to avoid the judgmental tone for which too many financial advisors are notorious, but if you have either assets or a family and you haven’t written estate planning documents yet—a will, durable power of attorney and advance directives—you’re simply doing yourself and/or your family a disservice. Just do it and get it out of the way if you’ve been procrastinating. Additionally, estate planning laws have been made (reasonably) concrete for the first time in over a decade. So if you have an existing plan, and you were working to avoid federal or state estate or inheritance taxes, the chances are good that you’ll be making some changes that will benefit you and your heirs. And please don’t forget that the beneficiary designations on your retirement plans and insurance policies should also match the intent in your will—because your beneficiary designations trump your will.
- ANSWER THE QUESTION “WHY?” – The WHY is the driving force—and often the missing piece—behind every financial plan. Knowing WHY you budget, save, spend, insure, invest and plan at all gives meaning to the process. Answering this question, and endeavoring to articulate the values and goals that underlie your life and financial plans will give you the much-needed fuel to do the type of financial planning that isn’t burdensome, but life-giving.
I’m happy to answer any follow-up questions you might have in the comments section or via email at firstname.lastname@example.org.