Tips for ‘spring cleaning’ your finances

WASHINGTON — I love the start of each season, especially spring. It symbolizes a new beginning to the year ahead, and what better time than spring to rejuvenate your own finances.

Here are my spring cleaning tips to breathe new life into your personal finances.

Rebalance your portfolio

If you haven’t rebalanced your portfolio lately, you may be carrying more risk than you think.

The U.S. stock market, as measured by the S&P 500 Index, has more than tripled from its closing low of 677 on March 9, 2009 after the onset of the 2008 financial crisis.

More recently, all three major US stock indexes — S&P 500, Dow Jones industrial average and Nasdaq composite — have hit record highs with one-year returns ending March 10, 2017 ranging from plus-19 percent to plus-25 percent.

It should also be noted that since President Donald Trump won the election, these same three U.S. stock indexes have increased from plus-10 percent to plus-14 percent between Nov. 8 and March 10.

Due to the run-up in the U.S. stock market and relatively low performance in bonds, it is quite possible that your overall risk exposure in equities is much higher than you originally intended and more prone to a sudden decline should the U.S. equity market have a correction. This is a good time to review your mix of stocks, bonds and alternative investments and rebalance back to your target asset allocations if they are out of alignment.

Although hard to do mentally, trimming back on your winners (sell high) allows you to buy investments that are not performing as well at a lower cost (buy low), protect your gains and position your portfolio to benefit from a change in the market’s favorites because it’s hard to know which asset class is going to be the next winner. Cycles are inevitable, and rebalancing your portfolio is a prudent risk-management tool that helps make sure your portfolio is not overly dependent on the success or failure of one investment or asset class.

Gather and simplify your assets

Do you still have a 401(k) plan sitting in your former employer’s plan or random IRAs at several investment firms?

Now is a good time to rollover your old 401(k) and any IRAs into one consolidated self-directed IRA. Of course, if you are still contributing to your current employer’s 401(k) or have an inherited IRA, keep these retirement plans separate. While you are at it, take a look at all your investment (nonretirement) and bank accounts and see if it makes sense to consolidate some of these separate accounts.

It’s generally more efficient and cost-effective to manage fewer accounts with larger balances, especially when implementing your overall asset-allocation plan. Another benefit: You will receive fewer statements and annual 1099s at tax time so there’s less paperwork to file.

Refinance your home and pay off expensive personal debt

If you haven’t refinanced your mortgage in the last several years, time may be running out on the very low interest rates we’ve grown accustomed to.

Although mortgage rates are still low by historical standards, interest rates have risen over the last several months. More specifically, the bellwether 10-year U.S. Treasury Note interest rate has doubled from a low of about 1.32 percent in July 2016 to its current rate of about 2.6 percent.

As anticipated, the Federal Reserve increased its Fed funds rate by 0.25 percent on Wednesday. The move was widely expected. Two more interest rate hikes are projected later this year given that the U.S. economy continues to report strong jobs growth and unemployment is now at 4.7 percent.

Higher interest rates not only impact mortgage rates, but also other forms of debt. If you have good credit, sufficient equity in your home and have been waiting to refinance your home, or open a home equity line to pay off more expensive debt, now would be a good time to “spring forward.”

Check your credit score and automate bill paying

If you haven’t checked your credit score in the last 12 to 18 months, do it now. The higher your credit score, the lower your borrowing rate. Knowing your credit score and doing a quick review of your credit report is essential in developing a strong financial infrastructure for yourself.

Make sure there is no reported debt that doesn’t belong to you or any unknown derogatory (or delinquent) remarks on your credit report.

Did you pay any loans late that could have easily been avoided by setting up automated bill paying? If you have not already done so, simplify your bill paying by making it automatic, especially your monthly loans and other recurring bills. Follow up on any suspicious activity or derogatory remarks on your credit report immediately.

Recommit to your financial goals

The starting point to take control of your finances is to have an accurate and real-time view of your full financial picture.

Time to awaken from your winter hibernation and know where you are financially. One of the best ways to do this is by taking our Financial Fitness Checkup quiz. This short (12-question) quiz will confirm what you already know and what may be missing in your financial plan.

Once you have done this, do an honest assessment of your success and difficulties in accomplishing last year’s financial goals and recommit to your financial goals for the year ahead. Setting three realistic financial goals in writing for the next 12 months will help you to prioritize which of your goals are most important and allow you to measure your success next year. Then, create an action plan with specific dollar amounts and align your daily actions with your financial goals.

Set up a sustainable filing system and buy a shredder

Everyone, myself included, can benefit from being more organized especially when it comes to all the paper that seems to accumulate despite our best efforts to go paperless.

My advice is to set up a financial filing system that works best for you at home and is accessible remotely. Your filing system should combine immediate access to bills and recurring monthly statements with a permanent storage component for important legal and business documents (to be saved in hard copy and electronic format). If you work with a financial adviser, ask them if they have an online vault where you can store important documents.

I tell my clients to invest in a shredder and shred their old paperwork. Most statements, bills, tax returns and financial records have a finite shelf-life and most have some type of personal information on them so you don’t want to throw these in the trash. Certain legal records need to be maintained indefinitely, so review carefully before shredding!

Hopefully you have several ideas here for a good spring cleaning of your finances and will feel rejuvenated as you accomplish them for a healthy financial year ahead!

Nina Mitchell is a senior wealth adviser and partner at Bridgewater Wealth & Financial Management, and co-founder of Her Wealth.

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