End of the Year Financial Housekeeping

The new year often bring with it resolutions to improve your life in one way or another.  As we reach the end of 2017, it is time for some financial housekeeping.  Time to open the drawers and cabinets, pull things out, take a look at them, decide if they are worth keeping and buff them up and put them away again if they are worth keeping--and just as we may have to help the elderly members of our family with major cleanings, we may need to help them organize their finances as well. 

On the financial side of life, here are some of those drawers and cabinets and cleaning chores:

Create a Financial Folder or Binder

One day you won't be here anymore, and until it happens (or it is close) you won't know whether you are one of those who gets at least a few weeks warning, or whether you will pass suddenly, or at least be incapacitated suddenly.  

If you died tomorrow, would those who need you financial data be able to access it quickly and easily?  A financial folder on your computer or a binder in your desk can make locating those items easier for your loved ones when that time comes.  Information needed includes:

• Account numbers, websites and passwords
• Insurance polices, along with the name of the agent (if you have one) to contact
• Car title
• Title to your home (if you have it) 
• List of autopay bills and the accounts from which they are drawn
• List of monthly bills that can be expected, along with a list of expected irregular bills like homeowner's insurance or taxes
• List of credit cards, along with a notation if a substantial balance is being carried
• List of outstanding loans such as mortgages, car loans, business loans, medical bills or credit card balances (if card isn't paid off regularly)
• Your will
• List of any major assets not listed above (if there is gold buried in your backyard you want the kids to know now), including real estate, collectibles (particularly if you know they are really worth something)
• List of professionals with whom you deal, particularly if your children/heirs are out-of-town.  Include accountant, attorney, plumber, exterminator, HVAC repair or anyone else they may need to contact before the estate is closed.  
• Your most recent tax return.  Your executor will need to prepare your final tax return, or have it prepared, and having last year's return as a starting place is a big help.

Beneficiary Selections

Your IRAs, 401(k)s and life insurance policies are not passed to heirs via your will but via a beneficiary selection form completed when the account was opened or the policy purchased.  If you haven't looked at your forms lately, now is a good time to make sure you haven't disinherited your youngest, and that you aren't leaving a windfall to your ex.  Putting copies of these forms in your binder will help your executor when the time comes, and then next year you can quickly review the binder and make sure the forms still reflect your wishes.

Insurance

Many people believe that the "insurance check-up" offered by our friendly agent is little more than a push for us to buy more insurance, and indeed that may be exactly what it is.  However, as we go through life, our insurance needs do change and sitting down once a year to review your coverages is a good idea.

Life Insurance: Has anything changed in your life to make more or less life insurance a good idea? If your youngest just graduated from college, do you still need that big policy? If you just bought a big house and a baby is on the way, it is time for more life insurance. If you are making substantially more than you were when you bought your policy, you may need more insurance to protect your family's increased standard of living.

Health Insurance: Open enrollment for health insurance is generally around this time of year. If your employer doesn't offer a choice of plans, the choice may be simple but if you are offered various networks and deductibles now is the time to run the numbers and see what will likely work best for you. At some point most people acquire some sort of ill that requires periodic doctor visits and once that happens the high-deductible plan that has served you well for years may not be the best plan for you anymore--or it may be. Run the numbers.

Auto Insurance: If your car is financed your lender will require comprehensive and collision insurance. However, once it is paid for, you get to decide whether those coverages are worth it. Basically the lower the book value of the car, the less you have to gain by carrying comprehensive and collision insurance. If it would not be a financial hardship for you to go out right now and buy another of whatever you are driving, it is time to seriously consider dropping the comprehensive and collision. Paying $300 per year to avoid having to pay $2,000 just doesn't make economic sense.

Also, look at your liability limits. As your income and assets rise, so should your liability limits. Most middle income families with assets and an income that allows for extras like vacations, boats, or private schools should have at least $100,000 in liability coverage. On the other hand, people with a low income and few assets can get by the the state minimum.

Homeowners/Renters:  Homeowners insurance pays to repair or rebuild your home if it is damaged in a covered peril.  It also replaces contents damaged in a covered peril (usually fire, theft, wind, or hail).  Flood insurance is separate.

Take a yearly look at your limits and decide whether it is time to raise them.  In some places the average cost of homes has skyrocketed not because it costs that much more to build but because the land has become very desirable.  If you have a fire, you don't have to replace the land, only the house so find out if you have enough insurance to rebuild.

One way to control the cost of homeowners insurance is to raise your deductible.  If you can afford the out-of-pocket expense in the case of an incident, then you may want to consider this.

Your Investment Portfolio

If you are like me, you have a 401(k), an IRA, a Roth IRA, and your spouse has the same, and then there may be a taxable account or two lying around too, plus the money in the bank, and that credit union account that your dad told you to keep open because it is such a great place to borrow money.  How often do you sit down and look at all those accounts as a whole?  

Personal Capital is an online robo-advisor that allows anyone to set up an account and link all their bank accounts and investment accounts, without cost.  Personal Capital will then analyze all your investments and see if your overall asset allocation is in line with your goals, as expressed in a survey they administer.  Once everything is in there, a quick check will tell you what your allocation should be, and what it is, so you can make needed changes.

If you have only a few accounts you can check them manually, and you should do so at least yearly, to re-balance.  For example, the general rule for people my age is to have about 65% of your assets in stocks, about 35% in bonds.  If I had started the year with that allocation and all my deposits this year had been made according to that ratio, I'd be overweight on stocks right (unless I had made some awful choices in picking stocks/funds) because the market has gone up so much.  Most retirement plans let you move money between funds online, and some let you do it via phone.

The other thing you need to do periodically is to determine if your current asset allocation is still appropriate.  In general, as you get older, more of  your money should be invested in bonds rather than stocks.  Most mutual fund companies and robo-advisors have online quizzes you can take to help you determine what your asset allocation should be.  

Your Will or Other Estate Planning Document

Once a year, take it out and read it.  Is it still appropriate?  Do you have a living will or advance directive?  Do you want one?  If the document you have still expresses your wishes you can put it away for another year, but if your family has changed, or your wishes have changed, call an attorney and get the will re-done.

Your Budget

Many companies give raises or bonuses in January so the beginning of the year is a good time to consider your budget and  your goals.  Sit down with your spouse or significant other if you have one and consider where you need to spend more or less in the coming year, and what you want long-term.  

Keeping up with your finances is a lot like housekeeping; if you keep the clutter picked up on a regular basis and tackle the bigger chores a few at a time, it is easier than cleaning a pigsty from top to bottom.  A yearly "deep cleaning" makes sure nothing is missed but regular light maintenance makes that deep cleaning easy.  

*Part of Financially Savvy Saturdays on brokeGIRLrich.*