Spring is on its way and so is spring cleaning. But spring is also a great time to start new habit. This year, when you're done cleaning out the garage, consider putting some shine on your financial affairs. It's an endeavor that'll pay off all year long. Here are five ways to give your finances a spring clean up.
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1. Rebalance Your Portfolio
Your portfolio dollars should be invested according to your goals, your investment horizon and your risk tolerance. Changes to any of these factors may mean it's time to rebalance your portfolio. The value of your portfolio will change more often than your goals or horizon, and major valuation changes may throw your original weighting off track. For instance, a rise in the value of your stocks could send your previously 60/40 mix of stocks and bonds to a new mix of 75/25. Even if gains are good, the new portfolio weighting will most likely come along with a new, higher level of risk.
If you are comfortable with your portfolio's performance but uncomfortable with the new level of risk, consider cashing in some of the profits and placing them into the bond or cash section of your portfolio. You will still be invested in the same securities, but the proportion invested in stocks will be lower, reducing your risk. (To learn more, read Rebalance Your Portfolio To Stay On Track.)
2. Make Sure You Have Adequate Insurance
Just because you have insurance, does not mean you have adequate insurance. Insurance comes in many forms including life, health, auto and home. Within each of those categories, you may find some gaps. For example, your teeth and eyes are part of your overall health, however neither dental nor vision coverage are included in health insurance policies.
Check your policies for gaps to determine where you may be underinsured, and overlapping areas to reveal where you may be over insured. Filling in the gaps can save you money in the event of a loss, while cutting back on overlap can save you money on premiums. (Some insurance policies are just a waste of money. Read 15 Insurance Policies You Don't Need.)
3. Update Your Will
Estate planning is often thought of as a morbid topic, but tackling it early can help ease the transition for your family members or beneficiaries in the event that something happens to you. If the past year has brought major changes to your life, then you should update your will to reflect those changes. Family life changes such as a new spouse, child or grandchild may prompt you to add a beneficiary or redistribute your estate.
Sizable changes to your finances such as the acquisition of new property or the addition of new assets or liabilities may make it necessary for you to add instructions for the distribution of those assets or increase insurance to cover the liabilities. (Find out how to put together a plan that works in Getting Started On Your Estate Plan.)
4. Check Your Credit
It is best to keep an eye on your credit all year, not just immediately before it is time to apply for financing. Obtain a copy of your credit report and examine it for validity. Pay special attention to the accounts, inquiries and payment history. If you find discrepancies such as debts you did not create or errors in your payment history, then you may have been a victim of fraud or identity theft. Reach out to the major credit bureaus and dispute each invalid item. Each consumer is entitled to a free credit report from each of the three nationwide credit bureaus every 12 months.
5. Get Ready for the Tax Man
The tax man comes every spring, so it's easy to be prepared for tax time. Plus, it'll help you avoid expensive surprises. If you have completed any large transactions, such as buying or selling a home or starting a new business, be mindful of the tax impact so you can prepare for it before April arrives.
For income from your job, be sure to check your withholding allowances to make sure they accurately reflect any recent changes which may impact the amount of taxes you owe, such as a new spouse or child. Allowances are important to monitor. Having the least amount of money withheld from your paycheck can force you to come up with cash for an underpaid tax bill, while having a large refund means you allowed too much money to be withheld.
The Bottom Line
Spring is traditionally the season to get things together around your home, so it pays to spread the tradition to your finances. Tidy up every so often to keep your investments, insurance, credit, estate matters and taxes in order.