Dust off and air out: Take these spring cleaning steps for your financial ‘home’
Spring has officially sprung — the flowers are blooming, the Kansas City Royals hosted opening day and Kansas City area residents are outside enjoying the sunshine. In the tradition of spring cleaning, let’s examine a few corners of your financial house to dust off and air out.
Deep cleaning
Take note of your annual savings rate. Did you contribute to your retirement plan last year? What percentage of your overall income did you set aside? A financial planning rule of thumb is to save 10% of your income for the future.
Tip: If your annual savings rate is low, increase your percentage 1 or 2%. Smaller adjustments digest easier and make a big difference in the long run.
Mind your expenses. Inflation is here — at the pump, in the grocery store, in our everyday products.
Tip: Split your paycheck into two accounts. One meant for monthly expenses like housing, gas, electricity, phone, groceries and insurances. Then add a separate account for discretionary expenses like gifts, dining out, entertainment and travel. Automate the monthly expenses as much as possible through bill pay.
This activity makes day-to-day decisions simpler. The trade-off between bringing your lunch to work so you have enough for dinner out on the weekend is easier to weigh than how that night out may impact your ability to pay normal living expenses each month.
A bit of dusting
Review your beneficiaries. Are they up to date with any changes in marital status or children? No one wants to spend time thinking about their own demise, but correct beneficiaries can save significant money and time down the road.
TIP: Set aside time each year to look at your retirement accounts and life insurance and make updates.
Understand concentration risk. Is your wealth significantly tied (25% or more) to one company?
This is often the case with business owners and founders. However, they typically have an in-depth understanding of the risk as well as significant control over the day-to-day operations of their business and are very comfortable with the risk-reward exchange.
Utilization of various employee ownership models like ESOPs or equity incentives continues to grow in our region. This investment can be lucrative as research suggests employee-ownership business models can produce above average results1. However, employee-owners are being exposed to greater amounts of concentration risk through their company stock.
Tip: Create a balance sheet of all your assets and liabilities. What percentage of your net worth is your company stock focused on. Understanding your risk and taking stock of it at least annually is beneficial.
Tidying up
Winnow down your subscriptions: Netflix, Hulu TV, and HBO Max. Are you still using all of them? Are there one or two you can live without? You may be surprised to find several you seldom use.
Tip: Look out for helpful tools like Truebill and Trim that can show your current subscriptions in one place and help you cancel them.
Check your credit, then freeze it. Good credit history will save you significantly on interest payments over your life. You are entitled to a free report each year through www.AnnualCreditReport.com.
Tip: You may be able to obtain a credit score through your credit card company or tracking application like Mint. Be careful as these scores are often different from the scores lenders use to issue credit but offer a indication of where you stand currently and actions to take to improve your score.
Tip: Freeze your credit with each of the credit reporting agencies. Cybercrime and identity theft are at all-time highs and instituting this freeze can protect your good credit. When you need to access credit in the future for a new car loan as an example, you will need to unfreeze your credit with a passcode you establish with the credit bureaus.
These tips can help you get your financial house in order this spring.
K. Patrick Amey is a CERTIFIED FINANCIAL PLANNER professional and a member of Financial Planning Association of Greater Kansas City. He is an Adviser and Wealth & Investment Manager with FAS (Financial Advisory Services, Inc.) in Leawood.
This story was originally published April 19, 2022 at 5:00 AM with the headline "Dust off and air out: Take these spring cleaning steps for your financial ‘home’."