Many people find that cleaning and organizing their home can be soothing as well as productive. Decluttering, dusting, and scrubbing can breathe new life into your home and help you feel more relaxed.
The same can be true for cleaning up your finances. Here are some tips to help you get better organized, feel empowered, and take control of your financial future.
Review your spending and savings
How much money you are spending and saving can have a big impact on your ability to reach your retirement goals and enjoy your desired lifestyle. Depending on where you are in life, you need to make sure you're not spending too much—or too little.
"I've had clients with million-dollar portfolios, who never spend their hard-earned money. So when they come in for their review, I have to encourage them to do so," says Jennifer Sellwood, CFP®, a vice president and financial consultant at Fidelity Investments. "On the flip side of that, I have clients with multi-million-dollar portfolios who are going to risk running out of money just based on how they spend. However much money you have in the bank, at the end of the day, it really comes down to how much your lifestyle costs."
Over the last few years, rising prices have hit many consumers right in the pocketbook. That means most of us are spending more on essential daily expenses. Over time, this could reduce the amount you are able to save, which in turn may reduce your ability to achieve the growth necessary to realize your long-term goals.
To manage the long-term impact of inflation, it may make sense to go back to the basics and take a close look at your budget. Just reviewing your spending for the past month or 2 could uncover some ways to keep more of your money in your pocket. You may have recurring memberships or subscriptions that you’ve forgotten about or there may be other leaks in your cash flow that could be fixed with relatively little pain.
Learn more: 4 keys to an effective, dynamic spending strategy.
Revisit your investing strategies
Are you clear on what your investing goals are? Before making any changes to your investments, take the time to reflect on what those investments are intended for. According to John Danahy, head of digital and advice offerings at Fidelity Investments, focusing on your goals when designing your investment portfolio has 2 main benefits.
"The first," says Danahy, "is that it helps organize us around multiple goals, many of which could be years or decades off. But it also gives the ability to tune out the financial press and the headlines a little bit. Progress to goal is the most important measure of the success of a financial plan. It’s not performance relative to either market returns or a benchmark that might not even be relevant for the customer’s goal. So I think what goal-based investing enables investors to do is step back from some of the noise and say, how do I answer the most important question? The most important question is, am I advancing in the right way to what’s important for me?"
Learn more: 3 steps to determine whether you're on track for success.
When was the last time that your portfolio had a regular checkup? If you're not sure about how recent market activities have changed your mix of stocks, bonds, and cash, it may be time to check in with your financial professional to see if you have a diversified mix of stocks, bonds, mutual funds, ETFs, cash, and other investments that are aligned with your overall investment and retirement goals.
Time to rebalance? Even if you have an investment plan in place, it's a good time to review it. Given how different asset classes perform over time, it's possible that your investment portfolio could be off your target allocation by 5% to 10% due to changes in the market over time. If your asset mix has shifted significantly from your target, consider rebalancing or making contributions to gradually get back to your target asset allocation.
Not comfortable doing that on your own? Consider meeting with a financial professional who can help you rebalance. Don't have a financial plan and target asset mix? Now's a good time to put one together.
Learn more: 6 steps to building a long-term investment strategy
Get smart about taxes
Looking for tax-free growth potential and tax-free withdrawals in retirement? Then consider a Roth IRA1 or a Roth IRA conversion. Not everyone can contribute to a Roth IRA because there is an income limit. But it's still possible to have a Roth IRA—by converting money in a traditional IRA or other retirement savings account.
The types of accounts you use to invest particular securities can make a difference when it comes to taxes, as well.
"We want to make sure that we’re always just as efficient as we can be, so when it comes to selecting the right accounts for your assets, it’s all about being taxed as tax-efficiently as possible," says Sellwood. "Therefore, different account registrations often should hold specific securities, just to be in that efficient space again. This is what's called 'asset location,' and it can really help make a difference."
Did recent market moves create tax-planning opportunities for you? Consider the potential of tax-loss harvesting to help lower capital gains taxes. Tax-loss harvesting allows you to sell investments that are down, replace them with reasonably similar investments, and then offset any realized investment gains and a small portion of ordinary income with those losses. The end result is that less of your money goes to taxes and more stays invested and working for you. The rules can be complex.
If you work with a financial professional, they may already be doing your tax-loss harvesting. If you're doing it yourself, it's always a good idea to consult a tax professional.
Learn more: 5 ways to be a tax-smart investor.
Check insurance coverage
Do you have the proper insurance coverage to protect your family? In addition to reviewing your homeowners/renters and auto policies, consider adding affordable personal liability umbrella coverage, which protects against the potential financial fallout of certain types of unforeseen events that lead to property damage or injury, for which the policyholder is held responsible.
Learn more: 5 steps to help protect your assets from the unexpected.
Make an estate plan, and other important paperwork
A thoughtfully prepared estate plan can be critical to ensuring your wishes for your long-term legacy are understood and that your family is taken care of appropriately.
"If you don’t have a last will and testament, what happens is that a plan is created for you, based on the laws of your state. That plan may not be as practical or tax-efficient as you would like it to be. And it won't take into account specific circumstances that you may want to plan for. For example, imagine an 18-year-old child or grandchild receiving a substantial sum of money with no guardrails or guidance," says Richard Martin, CFP®, an estate and business planning attorney with Fidelity's Advanced Planning team."When you take the time to plan, you can help to make sure the assets and property passing to your heirs will have a positive, rather than a negative, impact on their lives."
If you do not have complex planning needs, a basic estate plan can be completed online in approximately 1 to 3 hours and may cost less than $1,000 in legal fees. Consider using the Fidelity Estate Planner®, a free online tool for Fidelity customers that you can use to collect and organize information that you can then share with an attorney for your estate plan.
Be sure to obtain other documents that can help round out your estate plan: an advance health care directive, a power of attorney for finances, and a health care proxy.
Review and, where applicable, update your beneficiaries on your financial accounts. It's easy to do and only takes a few minutes online.
Learn more: 4 keys to a successful estate plan.
Organizing and storing financial documents
Like insurance, good recordkeeping is one of those things that pays off when you really need it.
If you don’t already have one, consider setting up a filing or other recordkeeping system. Keeping important documents (birth and death certificates, living wills, insurance policies, power of attorney, and other financial information) in good order and easily accessible will be helpful to you, and it can also help your family in a worst-case scenario.
Putting it all together
If you need help in getting and staying organized financially, it may be a good time to consider working with a financial professional or visiting Fidelity Planning & Guidance Center. The tools available in the Planning & Guidance Center enable customers to set a retirement goal, conduct analysis on their future retirement income outlook, monitor their progress, and understand strategies to help improve their likelihood of success.