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How to spring clean your financial house

Liam Lahey

With tax season in full swing and RRSP season long past, now is the time to start thinking of financial spring cleaning and how best maximize the year ahead.

Alison Griffiths, financial journalist and author of "Count On Yourself: Take Charge of Your Money", says to forget the future for a moment, look at your past, and ask yourself what you wished you had done differently.

"For a lot of people the answer will be along the lines of 'I wish I contributed more or more regularly to my RRSP'. In terms of tax season, many people will wish they had been better organized. Whatever your answer to that question is, that's how you start the next round of financial planning," she says. "That gives you a starting point. It's easy to say 'save more, borrow less', but those are big, broad areas for most people."

Revisit your asset allocation

An annual review of one's asset allocation is critical and it's something that a lot of individuals fail to consider, Griffiths remarks.

"It's not the about the type of stocks you buy or mutual funds that you purchase, that's not what creates a solid investment portfolio," she explains.

Investors need to decided what asset allocation they're comfortable with -- how much of their money they want to sock away into the major asset classes: cash, fixed income or bonds and equities."

"Figure out what you want your asset allocation to be, figure out what you've got, then start making adjustments and, certainly, getting rid of poor performing mutual funds is a good idea. But don't just focus on one or two years, look long-term."

In terms of your allocation, people have "way too much junk in their investment portfolios" Griffiths adds. Spend the time educating yourself on what it is you hold and whether or not it's a worthwhile investment. "Don't forget about Nortel," she quips.

Create an annual portfolio review process

Doug Carroll, vice-president, tax and estate planning for Invesco Canada Ltd., in Toronto and a member of Advocis, the Financial Advisors Association of Canada, says it's smart to take stock of your financial goals and performance annually.

"On an ongoing basis, keep decent financial records and utilize the 'My Account' service through the Canada Revenue Agency as it's a good resource for determining RRSP and tax-free savings account (TFSA) deductions," he advises. "Once you've determined your tax return, and perhaps you have capital losses or gains, maybe you'll want to shift around your assets so long as from an investment perspective it makes good sense to do so.

After consulting your advisor you find your holding aren't appropriate anymore; the time to act is now, says Carroll, rather than waiting until Dec.31st.

Automate your savings

Many financial advisors recommend automating one's savings contributions, for instance, to a TFSA. Both Carroll and Griffiths agree it's a wise move.

"It's a smart thing to do if your investing and therefore reaping the benefits of dollar cost averaging so you're buying over time and smoothing out the market or interest rate bumps," Griffiths says.

"It's even better in a tax-free savings account as it's out of sight, out of mind. If you're setting up an automatic savings plan, if you've got more than one basket to put funds into (e.g. an RRSP for yourself and an RESP for your children) split the automatic deposit between your two pay periods."

Carroll says to look in all areas where savings can be found.

"In my case, I haven't maxed out my TFSA simply because my higher priority is to kill off my mortgage," he says. "Ideally, an automatic savings plan, once it's turned on, you don't see the money coming into your account and so you'll tend to operate on a behavioural basis on the net amount you see coming into your spendable account."

Reduce household debt

Debt repayment should also be top of mind, Griffiths says. That requires taking a hard look at where cuts to personal expenses can be made be that dining out less or reducing your cable TV package.

"I find most people can cut out about 10 per cent of their non-fixed expenses easily without much pain," she says. "If you're one of those people that can never seem to find enough money to raise your RRSP contribution or pay down debt; start nickel and diming yourself and see if you can nibble 10 per cent out it."

Get organized with electronic bills and statements

Advocis' Carroll also highlights the need to maintain personal financial records.

"I owned a condo for about 12 years and at one point I had to go back into the original purchase documents to review my costs," he remarks. "Sometimes people might think to themselves, 'I no longer need these records', but you do."

On the subject of opting for electronic billing versus paper-based and establishing automatic payments, Griffiths adds it's a matter of individual comfort levels.

"There's a lot to be said for e-bills but I'm not a fan of automatic payments," she remarks. "I don't like money coming out of my account automatically and would prefer to spend even 30 seconds examining a bill and then paying it."

If you're going to set up an automatic system that's fine but it doesn't release you from having to check your statement to ensure bills come out when they're supposed to.

"Mistakes are made all the time," she warns. "People don't always realize how common it is for financial institutions to make mistakes. You've got to be vigilant about checking."

Griffiths adds it's wise from a data backup perspective to maintain a resident spreadsheet on your own computer to track and record your bill payments.