Depending on where you live, spring might feel like a distant memory right now. But in the spirit of tradition, it doesn't hurt to get ready for a little spring cleaning to start the year off on a good note. We often think of this as cleaning out the garage and dusting extra carefully, but why not take some time to clean up your finances this year, too? Read on for a few tips on how to figure out your financial goals, get in better shape with debt and expenses, and keep building on savings.
Step one: Know your values
Most of us assume the first part of any financial cleanup is drawing up a budget, or increasing your savings rate, or committing to cutting down expenses. But according to personal finance author Ramit Sethi, this isn't always the best way to approach the problem — at least at first. He writes that too often, the financial advice we hear is about cutting back on all expenses, when this is rarely effective in practice (not to mention very difficult and easy to give up on).
What we should be doing, Sethi argues, is spending more on the things we value. After all, even if money doesn't buy happiness, it can certainly buy some things that make you happy.
"I believe in conscious spending, or spending extravagantly on the things you love — as long as you cut costs mercilessly on the things you don't," Sethi wrote. Following this logic, we could start a financial tune-up by first figuring out what brings us the most joy. Whether that's traveling, trying new restaurants or the feeling of financial independence, Sethi encourages readers to find their financial passions and then consider the exact opposite: What are you spending money on that doesn't bring you joy? These might be the first budget items on the chopping block.
Step two: Check in on retirement
Moving from short-term planning to long-term tasks, take a look at your retirement account if you haven't done so recently. One study from Aon Hewitt found that although millions of American workers were contributing to an employer-sponsored retirement plan like a 401(k), fewer than 20 percent had taken a few minutes to check in on those accounts in the last year.
While most financial experts don't recommend keeping tabs on retirement assets more than a few times per year in most cases, it's not a bad idea to make a point of doing so to ensure you're on the right track. One of the most basic ways to do this is through rebalancing your retirement portfolio. That means switching up how your current and future contributions are allocated in the different investment funds offered by your plan provider.
The primary goal of rebalancing is to adjust your portfolio's risk tolerance. As explained by Nerdwallet, this has to do with the type of investments you're contributing to (stocks or bonds, in the most general sense) as well as your age, along with many other individual factors. For example, someone in his or her 30s might want to invest more in stock funds, which offer higher returns but more risk. On the other hand, an investor nearing retirement age may consider slowly shifting from stocks to bonds, which provide lower but more dependable returns.
Rebalancing can be complicated on your own, and there's no one-size-fits-all solution. As you check in on your retirement account, look into contacting a wealth management professional at your local Landmark Bank for even more help with this task.
Step three: Add to your insurance inventory
Whether you own a home or rent an apartment, having an appropriate insurance policy in place is more than just a good idea - your mortgage lender or landlord may require it. Homeowners insurance and renters insurance protects you against most forms of catastrophic damage that could befall your home, but many policies will also cover accidental damage, personal liability claims and much more. However, when it comes to replacing your possessions, several caveats may apply, and often require some advance preparation.
Most homeowners or renters insurance policies are designed to financially protect against a total loss of your home, at minimum. But reimbursing owners or renters for everything inside their home can be much more complicated. When you have a home inventory prepared, it's possible to get an accurate estimate of how much you could be reimbursed for items lost to fire or theft - whether they are all gone or just one is missing.
The Insurance Information Institute recommended starting your home inventory as soon as possible if you haven't already, and updating it regularly.
- Begin with the most valuable assets you own, like your car, furniture, electronics and jewelry, for example.
- Make the inventory as detailed as possible, including important information like serial numbers and photos.
- Include a purchase cost for most items, but don't forget that some very important possessions might actually appreciate in value. You will need to have these items appraised to arrive at an accurate value estimate.
Having only a basic inventory is better than none at all. Take some time to get one started and keep it in a safe location.
Investment products and services are not FDIC insured, not insured by any federal government agency, not a deposit or bank obligation, not financial institution guaranteed, subject to investment risk, including potential principal loss.
Insurance products and services are not FDIC insured, not insured by any federal government agency, not a deposit or bank obligation, not financial institution guaranteed, subject to risk, including potential principal loss.
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