10 Financial Spring Cleaning Tips

By Chris Duderstadt

February 8, 2022

10 Financial Spring Cleaning Tips

Key Points – 10 Financial Spring Cleaning Tips

  • Tax Season Is Never Fun, But Being Organized Can Make It Make More Bearable
  • Making Prior Year Contributions to Your IRAs Outside of Your 401(k)
  • A Financial Plan Makes a Huge Difference While Your Doing Financial Spring Cleaning
  • Things to Review: Beneficiaries, Insurance Policies, and More
  • 15 minutes to read | 28 minutes to listen

While it’s February and has been cold, it’s time to talk about spring cleaning your finances. As you begin to gather all the necessary information to file your tax return, Dean Barber and Drew Jones are excited to give a few extra tips about things to look for to keep your finances in order.

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Being Ahead of the Game with Financial Spring Cleaning

When it comes to doing financial spring cleaning, it’s the one time of year when people are forced to gather their financial documents to do their taxes. While it’s usually painful and far from enjoyable, financial spring cleaning must be done.

We hope that this list of 10 financial spring cleaning tips will make this tax season a little more bearable for you. Please keep these things in mind while you’re gathering all your documents, so you don’t have anything fall through the cracks.

1. Make Prior Year Contributions to Your IRAs Outside of Your 401(k)

This first financial spring cleaning tip is for those people who are still working. Workers might not know what their total income is for the year throughout the year, but gathering your tax documents will give you that answer. Drew’s first tip to those people during that gathering process is to always make prior year contributions to your IRAs or Roth IRAs outside of our 401(k)s.

“That helps us know that once you get to $190,000 for married filing jointly, you start to get into a phase-out period where you can’t contribute the full amount to a Roth IRA or an IRA without part of it becoming non-deductible,” Drew said. “Knowing that number can tell you that you can contribute the full amount and be OK. I think that’s the first thing that I always want to look at and make sure that we’re utilizing for the clients that are still working.”

People have until April 15 to make that contribution. If you are self-employed, you can do a self-employed plan all the way up until the time you file your tax return or October 15. You’ll start to raise some eyebrows at the IRS and maybe be subject to some fines and penalties if you don’t file by then.

“Those self-employed plans can contribute all the way up to that point,” Dean said. “There are some people that do that because they may not know where they’re at cashflow wise. Plus, they may not know exactly how much they’ve earned until they get their Schedule C done for self-employment so.”

Why This Matters for People with Taxable Accounts

Our first financial spring cleaning tip is also good to know for people who have taxable accounts. Those include brokerage accounts, individual joint accounts, and trust accounts. It’s especially relevant if you have a lot of mutual funds within those.

“You pay capital gains at the very end of the year, but really have no idea where those short-term or long-term gains are going to be at,” Drew said. “Let’s just finish up this year first. Then, we’ll readdress it the first quarter of next year and decide whether we can make those contributions or not.”

If someone is going to make that contribution and has a taxable account, they can shift shares of that fund, stock, etc. over to an IRA or Roth IRA. You don’t have to sell it and create a capital gain. It’s important to remember that you can transfer shares in kind.

2. Know How Much You’re Contributing to Your 401(k)

That brings us to our second financial spring cleaning tip. If you’re contributing to a traditional 401(k) or Roth 401(k), always remember to review how much you’re contributing from your paycheck each month and what the employer match is.

“I think it’s always good to review what you contribute after the first year because it’s also the time that most people get cost-of-living adjustments, raises, bonuses, and higher salaries,” Drew said. “Look at what you were contributing last year. If you just got a pay raise, maybe you can contribute a little bit more to your 401(k).”

3. Automate Your Savings

Number two on our financial spring cleaning tips list ties right in with number three, which is to automate your savings. If you’re not already maxing out your 401(k) contributions, it makes sense to do so. When you get a raise, don’t just take that whole raise and spend it. Take part of that raise and put it to your 401(k) if you’re not already maxing it out.

If you’re already maxing it out, it’s important to realize that you were without that money last year. Think about what you can do with it rather than focusing on saving as much as you can. That oversight tends to happen when someone doesn’t have a financial plan.

Dean, Drew, and the rest of our team at Modern Wealth Management frequently field questions from clients or prospective clients about whether they should contribute more to their 401(k). Oftentimes, the main questions that are on their minds, though, are if they have enough, and if they don’t have enough, when will they have enough?

“We call it lifestyle sacrifice. That’s when you focus on saving as much as you can to get to that end point,” Drew said. “That’s good, but what are the sacrifices that you’re making? Would you make different lifestyle choices if you knew that saving a little bit less would still have you right on track with what you want your retirement age to be or maybe even exceed it?”

Breaking Down What a Financial Plan Can Do for You

That lifestyle sacrifice of too much saving prevents you from living your one best financial life in retirement. That’s why it’s pivotal to have a financial plan so you can have the clarity and confidence to buy the new car you’ve wanted, take a dream vacation, or do something else that your heart has always desired in retirement.

It can be very easy to simply assume that you don’t have enough money to reach one of your retirement goals, but Dean has seen many, many occasions where a financial plan has shown a couple that they do have enough. Here’s one recent example from a couple in their early 50s with a net worth of about $4 million.

“The bottom line is that if this couple doesn’t ever save another dime, they’re still going to be able to do whatever they want to do within five years,” Dean said. “However, they’ve been saving at an incredible pace. The husband was even getting angry at the wife because when they went on their vacation, she wanted to get a luxury rental as opposed to just the base rental and it was $65 more a day. By laying everything out in the financial plan, we should them that they had enough for the luxury rental.”

The Earlier You Can Create a Plan, the Better

Receiving the clarity and confidence from a financial plan can be rewarding at any age, but the earlier you have that plan in place, the better. It’s perfectly normal for spouses to have different thoughts on the ideal amount of saving/spending. By creating that financial plan in your 50s, 40s, or even your 30s rather than waiting shortly before your desired retirement age, it will be much easier to come to a common ground and attain that clarity and confidence much sooner.

Here’s another example from Dean regarding a client that he just met with in December. The client couple is 72 and retired 15 years ago after selling their business. Dean shares that there is no way that they can spend all the money that they have, and their accounts are still piling up assets.

“The husband told me that he and his wife had talked about how they could have kept their business for another five years. While they could have made more money, he said they wouldn’t know what to do with it since they already had enough,” Dean said. “It was great that they had that plan in place so that at age 57, they could walk away from their business and start doing whatever they wanted to do. That’s what I call financial independence.”

Connecting Your Money to Your Life

Rather than focusing on how much you can save, focus on how much you need to save. There’s a healthy balance to it, which you can see once you create your financial plan. Unfortunately, our CFP® professionals have seen instances where people have made several sacrifices and then once they finally close in on retirement, one of the spouses passes away.

Suddenly, many of those retirement dreams are all for naught. Creating a financial plan connects your money to your life so that you’re not having to make those sacrifices leading up to and during retirement.

“We go through what we call our prioritization exercise where we ask people what the most important things are in their life. I don’t think anybody has ever said the most important thing to them is having as big a pile of money as they can get,” Dean said. “There are far more important things in life and money is how those things get paid for. It’s critical that people get that plan in place so that they don’t overspend or over save. It can go both ways.”

4. Reviewing Your Beneficiaries

Next up on our financial spring cleaning tips list is arguably the most important point. Review your beneficiaries on all your accounts. It’s something that should be done every year.

“I think in the beginning of the year is the perfect time to review your beneficiaries. Unfortunately, death of spouses and divorces happen,” Drew said. “And most people have children that factor in as well. There are some real horror stories of people that still have ex-spouses as their primary beneficiary even though they’ve gotten remarried. Even if you have an estate plan, your beneficiaries need to be looked at on a timely basis.”

It isn’t just primary beneficiaries that need to be reviewed either. It’s a big deal to review your contingents as well. Dean and Drew have have witnessed too many occasions of when spouses pass away within a short time of each other and only had each other listed as their beneficiaries, didn’t have a transfer on death to their children, or didn’t have a trust established. Suddenly, probate can come into play and it becomes a mess.

“Reviewing those beneficiaries is a great thing to do. Since you’re already gathering all your tax documents during this financial spring cleaning process and have statements from all your investments, all you need to do now is get the beneficiary forms,” Dean said. “You should have a file of your beneficiary forms. Ideally, you’ll create a spreadsheet that outlines where all your money is, your primary and contingent beneficiaries for each account, the accounts that your trust owns, your deeds or your home, and all those things.”

How Beneficiaries Fit in Within the Guided Retirement System

With our Guided Retirement System, our CFP® professionals do a focused estate plan review every other year with clients. Their beneficiaries are reviewed as a part of that estate plan review. That way, they won’t overlook anything that has happened over the previous year that would’ve caused their beneficiaries to change. It’s a pivotal part of the financial spring cleaning process.

5. Reviewing Your Insurance Policies

This brings us right into our fifth financial spring cleaning tip, which is to review your insurance policies. While you’re reviewing all your accounts, you need to also look at that from a life insurance perspective. That applies to life insurance, term life insurance, whole life insurance, or disability insurance. It’s critical to review all that on a yearly basis.

“When we go through our initial data gathering for onboarding a client, we ask them to bring us statements on their insurance policies and the policies themselves. I’ve seen so many times where they try to pull the policy out of the plastic and the letters are stuck to the plastic. Some of those policies were for outdated with old mortality tables. In those cases, there are often new policies that could be put in place that would be far more efficient.”

The Big Difference Between CFP® Professionals and Financial Salespeople

Dean believes that one of the biggest reasons for why people don’t think about their insurance policies while financial spring cleaning is because nobody wants to be sold insurance. They equate looking at insurance with having to talk to a salesperson. The Guided Retirement System helps prove our commitment to putting clients and prospective clients first.

We’re not financial salespeople. Yet we still know how to analyze the policies and what’s available to guide people in the right direction. We want to make sure that whatever they’re doing is very efficient. Here’s another example from Dean to highlight the importance of reviewing insurance policies.

“Let’s say that you went through a midlife crisis, but you just had to have the Porsche 911,” Dean said. “So, you insure that Porsche 911 and get five years down the road and decide that you can go back to a Chevy Impala. But you keep the insurance on the Porsche 911. Why would you do that? It’s easy with automobiles because they’re going to get replaced, but people buy insurance for different reasons over their lifetimes. Sometimes they just keep it and don’t review it. They don’t understand if they have the right coverages or if the prices they’re paying are fair. That’s something should be done at least every other year.”

Don’t Forgot to Review Property and Casualty Policies

Whenever our CERTIFIED FINANCIAL PLANNER™ professionals review policies, they also look at property and casualty. Think about the environment that we’re in with home prices with where they’re at right now.

For example, there are people that have home values of $500,000 to $700,000, but their insurance policy is only covering $300,000. They often don’t realize it, though. That’s a huge risk because if anything happens, they’re going to have to come up with another $200,000 to $400,000.

“Your property casualty insurance agent isn’t typically looking at that every year. They just want you to renew,” Dean said. “If you keep renewing and paying the premiums, they are good with it. It’s less work on their part and they keep getting paid.”

6. Reviewing Your Budget and Update It If Necessary

Next up is number six on our list of financial spring cleaning tips. That is to review your budget and update it if necessary. Sometimes people think that word budget is a dirty word because it’s a pain and it offers the connotation of feeling constrained. Dean and Drew recommend thinking of the word budget in a different light, though.

“When you look at a budget in the light of an overall financial plan and about how much you need to save, suddenly that budget can be fun,” Dean said. “You can say, ‘Here’s what we’re allowed to spend and do now, and we’re still going to be OK for the future.’”

Drew added, “I have that conversation with a lot of clients. The idea is not to limit yourself financially. It’s to know where the money is going. Once we identify where the money is going, we have these other goals. Those goals can be related to traveling or the cost of spending time with loved ones. It’s money that we can allocate to spend more in that arena. That’s what we all want. We want time with family and making those fun memories.”

The most powerful asset we have is time. People want to know if they can realistically achieve their retirement goals and usually understand that there’s only a limited amount of time to accomplish them.

7. Reassessing Your Goals for 2022

Speaking of goals, that leads us right into number seven of our financial spring cleaning tips. Now is a good time to reassess your goals for 2022. Don’t only reassess the goals themselves by deciding whether they’re still important but determine if they are going to cost the same. That ties back into the budgeting process.

“Maybe one of the clients we’re meeting with has gone through a major life event. That can cause somebody to reassess their goals,” Drew said. “We talk about their goals and figure out if we need to increase those goals or have them go for longer. Do we need to increase the inflation that we’re assuming on those goals because of whatever events we’re facing in life?”

8. Reviewing Your Net Worth

Our eighth financial spring cleaning tip can be a joyous or painful occasion. That is reviewing your net worth. Where were you a year ago? Where are you today? There are a lot of factors that come into play.

“If you have a good year, you can see that you grew your net worth by X-amount,” Dean said. “But if the markets go the other way, you need to spend more than what you thought. Or maybe something happened that was unforeseen, such as helping one of your children financially. It’s critical because your net worth is going to directly tie back to how much is OK to spend. That’s going to tie back to the budget and everything else within the plan.”

It’s always good to reflect and figure out your difference in net worth from year to year. Figure out what played out during that year to cause the net worth to change to be positive or negative. Then, make any necessary adjustments. If what happened wasn’t what you wanted to have happen, don’t expect something different to happen by doing the same thing.

Investing Goes Through Cycles

However, you don’t need to go into complete panic mode after one bad quarter or even a bad year. Remember that investments sometimes go through cycles. Again, look back at what you did previously. Plan around that to put yourself in a better position going forward.

9. Do Future Tax Planning

Now that you’ve gathered all your documents gathered and have your taxes done, you might think that you’re all done with your financial spring cleaning. Well, not quite. Number nine of our financial spring cleaning tips is to do future tax planning. Start planning now for 2023 and 2024.

And we’re not talking about tax preparation here. This is about how you can do things differently to control your taxes better in the coming years.

“When we’re working with people who get really close to retirement or have retired and we’re doing the planning for them, we’re running through the different situations. We look at your tax bill money, tax-deferred money, and tax-free money,” Drew said. “When we’re going through those differences, a lot of people wish they would’ve gone through that process 10, 15, 20 years ago. It can make a huge impact on somebody’s plan, but it also makes a huge impact on their tax bracket in retirement.”

Dean’s Recent Realization

Dean and Drew enjoy the opportunity to provide clients and prospective clients with those enlightening and educational moments. As they continue working through financial plans to help people find clarity and confidence, they have some enlightening moments every now and then as well.

“I just turned 56 and was recently visiting with one of my clients that was 72. The next day, I woke up in the middle of the night and realized that I’m not that far away from being 72,” Dean said. “It helped me realize that much more to understand what’s important to people, what we should be looking at for them, and how to plan around it. That’s big.”

Forward-Looking Tax Planning Is Dynamic

We know that tax law will change, but our team needs to plan around what we all know now. When our CERTIFIED FINANCIAL PLANNER™ professionals are building financial plans, they can implement a tax forecast or project what tax bracket someone will be in into the plan. Whether it’s a Roth conversion as mentioned earlier or whatever it may be, there are all kinds of things that can happen with tax planning.

“Tax planning evolves every year. We have tax planning software that we use as soon as those tax law changes are in place,” Dean said. “It gets updated within our planning software, so we can see immediately the effects of our strategy and know if we need to pivot. Do we need to make an adjustment and do something a little bit different?”

Of course, if you live in the United States and have money or make money, taxes are going to be a fact of your life. The goal of forward-looking tax planning is to pay as little tax as possible over a lifetime.

10. Literally Clean

Last, but not least on our list of financial spring cleaning tips is to literally clean. Over time, it’s easy for your file cabinet or office to get cluttered with various documents. That problem can escalate if your spouse passes away and it falls on you to figure out all the pieces of a complicated tax filing puzzle. So, what should be a protocol of how long you should hang on to different tax documents?

“You can toss most documents after three years. There’s a little bit of a difference, though, if you have any debt or loan that was settled. Normally, you want to keep debt for about seven years as well as tax returns,” Drew said. “I think something that’s very powerful for a lot of people is digital storage. At Modern Wealth Management, we have a digital vault through our financial planning software. You can scan the document to a PDF and store it in that secure vault. Now this paper mess has become digital. You can get access to your documents anywhere you have internet access.”

How We’re Literally Cleaning at Modern Wealth Management

A lot of people wonder what to do with the documents once it’s time to toss them if they don’t have a shredder. For people that come in and meet with us for reviews, we can hold on to those old documents in a shred-it lock box. We then have a shred-it truck that comes by our office twice a month to take it from there.

“I can’t tell you how many adult kids that are our clients, their mom and/or dad have passed away, and now they’re going through this mountain of stuff,” Dean said. “It’s sometimes two and three years later that they’re still finding things. They don’t know what it is or if it’s still in existence. If you’ve got this stock certificate, is the company still around? Did it turn into something else? Make sure to clean that up.”

Reach Out to Us with Your Financial Spring Cleaning Questions

Keeping your financial house in order is really a key thing and a financial planner can only do so much. There’s a lot of responsibility that falls back on the individual. Our goal is to help people understand what documents they need to do, what they need to keep, how long do they need to keep it, and what to do with it when they don’t need it anymore.

“We mentioned earlier that we go through a thorough estate planning review every other year using our Guided Retirement System. We look at the beneficiaries on all the accounts—not just ones we hold here, but ones that other places hold too,” Dean said. “It’s important to us to keep an inventory of everything so that when something does happen, the beneficiaries know what to do. It’s a critical part of the overall plan.”

Dean and Drew can go on for hours discussing more financial spring cleaning tips. Hopefully, these 10 tips can help your organization skills for this tax season and beyond. If you have any questions about any of these financial spring cleaning tips, you can schedule a complimentary consultation or 20-minute ask anything session with one of our CERTIFIED FINANCIAL PLANNER™ professionals. We’re happy to meet with you in-person, virtually, or by phone.

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Investment advisory services offered through Modern Wealth Management, LLC, an SEC Registered Investment Adviser.

The views expressed represent the opinion of Modern Wealth Management an SEC Registered Investment Adviser. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Modern Wealth Management does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.