Here are some smart financial planning moves for your spring ‘cleaning’
Paul Fain, CFP®
A few weeks ago, we cleaned out and reorganized our bedroom closet and our garage. The annual spring ritual leaves us feeling better and a few dollars richer as we gave away some clothes, shoes and coats and sold some bigger items online. Now our attention is turning toward a spring cleaning of our financial planning!
What about you? Now that your taxes are filed, what do you need to adjust? Did you withhold enough or too much? If you are expecting a refund, where will it benefit you the most? Paying down debt or increasing your cash reserve fund?
Before you put away your tax calculator until next April, consider some “tax-loss harvesting.” Turn some of that portfolio red ink into a realized capital loss for future tax reduction. But remember to avoid a “wash sale”: After selling a security for a loss, wait 31 days to repurchase the same asset or alternatively, you can immediately replace it with a similar but not identical asset. (Check with your tax adviser.)
In a year of chaos, now is a good time for a gut-check on your financial independence plan. Are you on track or knocked off track? If you are discouraged (“I’ll never be able to retire,” or, “I need to go back to work”), take heart in that you can control several influential variables. You can work a few years longer, switch from full-time to part-time employment, save more, spend less, defer some big-ticket items, reset your investment strategy to be more productive, wean some family members off the payroll, etc.
Do you have a ragtag basket of individual stocks? Well, the pandemic has reminded us that companies can close due to external events. Consider building a more diversified portfolio with mutual funds and Exchange-Traded-Funds.
Sitting on an adjustable-rate-mortgage? Now is the time to check out refinancing to a fixed rate loan; or, prepare for your mortgage payment to go up.
Speaking of rising costs, we are certainly feeling the effects of higher inflation – prices are higher on more than gasoline – costs are rising on haircuts, hamburgers, hotels, etc. Clean-up your spending patterns and make adjustments, especially retirees. Inflation won’t stay at 7-8%, but address it in your budget while it is here.
Last but not least, de-clutter and organize your financial documents. I separate my retained papers into four files: to be done now, to be done soon, archival records (house, cars, medical, taxes, etc.), and memorabilia/family. I shred old bills and statements; scan and digitally store as much as possible; and, automate as many financial processes as I can.
Periodically reviewing and simplifying our financial plans and investments just feels good afterward as you sit on the porch to look at spring flowers and listen to the birds sing.
This article was initially published in the Knox News Sentinel on April 22nd, 2022