Decluttering Your Bottom Line: Financial Spring Cleaning
It’s an annual ritual in many American households: as the weather gradually begins to warm and the trees begin to bud, we open all the closets and dresser drawers, pulling out clothes and other items and sorting them into three piles—“keep,” “throw,” and “sell or give away.” It makes sense. Spring cleaning is one way that we make a periodic assessment, not just of our wardrobes, but also in our lives. It helps us get rid of what we don’t need so we can focus on what is most important. For many, it’s an emotional decluttering as much as a material one.
Yet most of us don’t consider the need for a periodic “financial spring cleaning”. That’s too bad, because just like our closets, our dressers, our attics, and our storage units, our financial arrangements also accumulate clutter over time. What started out as clear goals and steps toward a destination get sidetracked, derailed, and muddied. They benefit from a periodic fresh look in light of life changes and shifts in priorities that happen in everyone’s life.
Here are three tips for financial “spring cleaning” tasks that should be on everyone’s radar.
1. Review your spending priorities. Nobody likes the “b” word. So rather than thinking about your spending in terms of a “budget” – a prescription for your financial outlays that is rigid and feels constraining — why not review your spending in light of your short-term and long-term financial goals? A spending priorities review can be an effective personal financial clutter detector. After all, your spending should always give priority to your most cherished financial goals.
When done mindfully, a spending priorities review is an extremely effective way of re-focusing on what is most important to you in your current lifestyle, your values, and your future. It helps you spend and save in a way that reflects who you really are and who you want to be. With that in mind, it’s a good idea to take a closer look at your spending at least once a year, to see if you are directing your precious financial resources in ways that not only make you happy now but will also facilitate your longer-term happiness and financial security.
2. Reassess your financial risk tolerance. It is completely normal human behavior to think of risk – the possibility and probability of negative events and consequences – in terms of very recent experience. That’s because our default mode of anticipating experiences, including risk, is our “fast” – or emotional – brain and not the “slow,” or rational/analytical brain part of our brain. And our “fast” brain doesn’t have a very long memory.
And as a result, it’s very easy for most of us to discount the possibility of sporadic, negative events. It’s also very common for us to be confident when things are going well but turn decidedly risk-averse when we’ve just experienced not-so-wonderful things, like a year of negative market returns or a career dislocation like a layoff. That’s why tough times can teach us all a lot. In that way, they are a gift. They give us an opportunity to explore how these events truly make us feel. And that enables us to adopt a more balanced approach to long-term risk, even after the tough times have passed.
Here are good questions to ask yourself:
- How did last year’s market declines make me feel? Did I lose sleep? Did it make we really nervous or anxious?
- How did I feel about the possibility – even remote – that I might lose my job at some point? Did I feel confident that I would have the financial resources and strategy to handle such a transition? Or even to take advantage of it?
Depending on your answers, you may want to talk with your Wealth Advisor about adjusting your portfolio strategy or other aspects of your long-term financial plan. After all, our goal is not only to help you achieve your long-term goals, but also to make the journey as simple and enjoyable as possible.
3. Simplify where appropriate. Last year was a time of significant change in many parts of our financial lives. And that presented us all with opportunities to get drawn into short-term “fixes” at the expense of long-term solutions. For example, you might have opened one or several new credit cards to keep your interest payments low during a time of rising interest rates. Or you may have responded to an offer for a “teaser” interest rate on cash balances if you opened a new bank account.
Whatever these options may have been, now is a good time to talk to your Griffin Black Wealth Advisor about whether they are ideal additions to your long-term financial strategy. After all, “teaser” rates expire and additional credit cards may not actually help you over the long term. Whatever the reason for the “fix,” now is a good time to let us help you think about whether it’s something that you can move on from or whether you need a better solution for the long term.
At Griffin Black, our most important task is to help each client identify his or her most important financial objectives, and then help design a practical strategy for reaching them. To learn more, click here to read our article, “Your Money or Your Life—or Both.”