Financial Spring Cleaning

Its that time of year again. Time to clean and organize the house. Open the windows and let in some fresh air. Why not do the same for your finances? Just like your home, after being closed up all winter, your finances can use a quick dusting and organizing. It can feel pretty cluttered at first, but can easily be refreshed.

Reviewing last year’s budgeting and goals

Did spend more than you made? How about that emergency savings account you wanted to get established? Were you able to put anything away for that vacation you want to take? Start by reviewing how effective you were last year to put things into perspective. Sometimes it can be the rough wake up call you need to jumpstart a change. If you weren’t able to reach your goal, diagnose the issue to make sure you move in the right direction going forward. What were some targets that you hit? Continue to build on those successes and take a moment to reflect on how you accomplished them.

Checking in on your Investments

Review your company plan to see how much you contributed, how much your company contributed for you, and how did those investments perform. Hopefully, most of your growth in the account didn’t just come from new contributions. Check your portfolio against a benchmark that closely matches your asset breakdown. It doesn’t make sense to compare your moderate risk portfolio against the S&P 500 index performance. Make sure to also compare your performance against your personal rate of return expectation. What’s that? This is the return that you need to average over the long term to meet your goals. It’s possible you could only need to have a return of 5% over the long term to meet your end goal. When you see an 7% return in your portfolio, you can be happy knowing you outpaced your needed return, even if it isn’t quite as high as some other investments out there. Keep things in perspective and geared towards your personal plan.

Adjusting your tax withholding

Everyone loves getting a tax return this time of year. It’s a great boost after a long winter and holiday season that drained your funds. Have you ever thought about why you get that return? It’s actually due to overpaying taxes throughout the year. Not only does it mean you took home less throughout the year, but you gave it to the government as a short term loan! Consider adjusting the withholding on your paycheck to better align with what you would truly owe. It could be costing you more earnings and savings down the road. You could be contributing a little more towards your retirement plans or maybe starting a side investment account. You may be eligible to put that extra cash in a Roth style account that allows for tax free growth. Are you still carrying student loans? That extra money could be going towards paying down those debts and save you precious money in interest over the long term.

Set expectations for the year

Look to set some new goals that are attainable and measurable. If your goals are too drastic of a change from your previous year, you may not achieve them. On the flip side, if they are too simple, it could be too little to effect a larger change in your financial well being. A little extra saving can go a long way. For example, with an average 6% return, putting away an extra $50 each month over the next 30 years can help you have an extra $50,000 later in life. That could mean a simple goal of eating out one less night a month.

Spring cleaning never sounds fun, but it doesn’t have to be as taxing as you think. Take an hour while you are watching your favorite show on Netflix to review your previous year, set some new goals, and adjust your plan according. You never know, maybe you’ll look back and find that you achieved everything you had hoped and if nothing else, this exercise can help you carry that momentum through the rest of the year. Consider consulting with a professional planner to help make sure you are utilizing the best avenues to make your money work for you and shed light on any gaps you may not know about. Talk with Indy Wealth Solutions to get started.