Experts recommend annual spring cleaning for your finances
Washing windows may be top of mind with the arrival of spring, but you may want to think about cleaning up your finances, too.
Financial advisers say the month after tax season is the perfect time for tightening budgets and updating insurance polices, wills and retirement plans.
Much of the information you'll need is in your most recent tax filing, so you might as well keep the Form 1040 out a little longer and put it to good use, said Diane Pearson, a wealth adviser and certified financial planner at Legend-Financial Advisors Inc.
“You really have a good financial tool in your hand right now,” Pearson said.
Tax documents are useful not only in establishing income when setting your annual budget, but for getting a handle on things such as medical expenses, which may be among the itemized deductions.
Other helpful documents are utility bills and credit card statements. But you also might spend a week or two tracking the smaller items like the cup of coffee you buy in the morning or deli sandwiches you get for lunch, advisers say. Those need to be accounted for as well.
“The little things we pay cash for tend to get overlooked,” said Karen Lapina, a financial planner at Fragasso Financial Advisors. “But they can add up.”
Organizational memberships are important to consider, too, Pearson said. Maybe you belong to a gym you don't use or subscribe to magazines you don't read. If so, cancel them, she said.
Another item that tends to get forgotten is life insurance. Many people are over-paying for life insurance policies because they have not updated the coverage to fit their needs, Lapina said. They might have opened the policy at a time when they needed more coverage because their savings were small or they had children living at home. But as their finances grow, those polices can be scaled back. Conversely, many young families are under-covered, Lapina said.
Just as important is updating the beneficiaries on insurance policies, wills and retirement plans. Many people forget to do this after a major life event, such as having a child or getting married or divorced, Pearson said.
“We've had that situation,” she said, “where the ex-spouse is listed as the beneficiary on a plan or on the insurance policy. ... Something happens (to the person covered), and it causes chaos.”
Workplace retirement plans, such as 401(k)s, should be reviewed to make sure the investment returns on certain funds justify the fees paid to the experts who manage them, Lapina said. If not, there may be a less expensive investment that offers more return for your money.
Consolidating multiple 401(k) plans can make tracking retirement savings easier, Lapina said, though some people prefer the flexibility of having a larger number of funds from which to choose.
“Consolidation makes life a lot easier,” Lapina said. “But they need to look at the investment options on both sides.”
Another workplace benefit that people would be wise to review is health insurance, said Jonathan Bernstein, a financial adviser at Hefren-Tillotson, Downtown.
A family should look at their past health behavior and make sure they have the appropriate level of coverage, he said. A flexible spending account, which allows someone to set pre-tax money aside for health expenses, can help lower health expenses. But be careful not to set aside too much money in an FSA, he said. Most plans don't allow beneficiaries to roll the remaining balance into the next year, which means they would lose unspent cash.
After all of this financial “spring cleaning,” someone may not change a thing. But it's still a useful exercise, Bernstein said, particularly in households in which one person is primarily responsible for the finances.
Bernstein sat down with his spouse recently and made a list of all the assets they had together. It included the financial accounts, websites and passwords — everything one of them would need to know if the other were incapacitated.
“I felt that was really beneficial,” Bernstein said. “Going through the process yourself and writing it down makes a bigger impact for you to understand what's going on and for your spouse to understand as well.”
Chris Fleisher is a Tribune-Review staff writer. Reach him at 412-320-7854 or firstname.lastname@example.org.