It’s that time of year in the Great White North. The days are getting longer, the sun stronger, and temperatures are slowly starting to climb above those found in your home freezer. As the spring thaw begins, those of us who choose to subject ourselves to winter every year feel that “itch”. The itch to get outside without a white blanket on the ground; the itch to trade parkas, hats and mittens for shorts and t-shirts; the itch to open the windows in the house, even if it is ‘only’ 45 degrees, and get some fresh air into our abodes.
But there is one caveat to the joys of spring- spring cleaning! After being stuck indoors for the better part of 4 months, who wants to spend a whole weekend, or series of weekends, freshening up the house? Sadly there is work to be done. Winter clothes to be put away and spring clothes to bring out. Windows to wash, floors to scrub, screens to spray out, and a winter’s worth of dust bunnies to corral.
Truth be told spring cleaning isn’t that bad (just don’t tell my wife I wrote that). After all, spring brings rain showers and sloppy yards. Outdoor activities remain somewhat limited when this occurs, and one might as well stay busy. Once the more traditional cleaning is done, why not turn your focus to a financial spring cleaning of sorts?
There may be no better time of year to spend a day reviewing your financial life. You are caught between the festivities of the Holiday season and the activities and travel of late spring through summer. You likely have much of the financial information put together for your tax preparer, and you still have enough time left in the year to make any necessary adjustments worthwhile.
So what might a spring financial cleaning session entail? Consider:
- Taxes– Most Americans are a month away from filing their 2010 tax return. Once the return is finalized you will have the opportunity to review your progress on the current year. Are your withholdings appropriate? If you received a refund for 2010, or if you had a larger than expected tax bill, you may wish to reduce or increase your 2011 withholdings accordingly. If your CPA made estimated payment recommendations, you can look at your budget to see how they will fit in. Beyond your income taxes, this is also a good time to review your annual property taxes. If you don’t escrow your tax payment each year, have you secured the necessary funds to make your May payment? October payment? Have you reviewed your tax assessment to ensure the valuation is fair? If not, what is your recourse?
- Income– You have the opportunity to review your W2s to see what your overall income was in 2010, and project if you think 2011 will be similar. This will help in the tax planning noted above, but can also help you review budgetary and savings goals. Many of our clients who receive annual bonuses receive it about this time of year. A review of the year’s expectations can help you plan the various uses of that income.
- Expenses– Now is the right time to review the annual budget. The arrival of spring brings lower energy use in the home, and less of the monthly budget will be dedicated to the heat and electricity bills. Where should that money be diverted to? Are there expenses poised to take their place or can you save slightly more for the next 7-8 months? This is also a good time to think ahead to summer. When people ask me how many kids I have, I simply answer, “I have two hockey players and a daughter”. It isn’t that my daughter couldn’t be a hockey player, she just isn’t. I am now starting to write checks for the summer clinics, camps, and sports teams my two sons will play on. This takes some forethought and planning, and should be put into context with the rest of our annual budget. Plus, paying attention to these expenses now can better prepare me for the same expenses next year. Summer will also bring travel for my family. It will be useful to take stock of what we currently have saved, and what is left to be done before we hit the road. Sometimes I wish vacations weren’t so much work!
- Investments– If you are managing your own portfolio this might be a good time to ensure you have the proper risk level for your needs. Rebalancing once per year is often enough, and now is the time to review your allocation, especially after another good market year in 2010. You might find the world, and your investment outlook, has changed. You have an opportunity to re-tool your savings to better reflect what you expect going forward.
- Insurance and Estate planning– As long as I am spending time looking at my complete financial picture, why not review my insurance policies and estate plan to be sure they are in order. Do I have the appropriate property and casualty coverage? Life insurance coverage? Should I shop for more cost effective policies? Does my will still meet my needs and desires? Is my Durable Power of Attorney and Health Care Declaration still as I would like it?
Whether you are a do-it-yourselfer, or you work with a planner, take advantage of the blossoming season to cultivate and refresh your financial life.
Mike Branham, CFP®
Cornerstone Wealth Advisors, Inc