Yahoo Finance Six tips to help you spring clean your finances
When you think about spring cleaning you probably consider sorting through that messy shelf at the back of your closet, donating items to charity, or packing away winter gear until next season. But it’s also the perfect time of year to reevaluate your finances, get rid of services you no longer need, and research what you do need.
Adam Gordon, a Certified Financial Planner (CFP) in Toronto, has spent the last 12 years coaching and training advisors and clients on how to formulate and implement sound financial planning principles so they can achieve their financial goals and dreams. Here are his six tips to help you spring clean your finances.
1. Make sure your financial advisor or consultant is a good match
This season is the perfect time to ensure you and your financial advisor work well together. “[A] good rule of thumb is ‘Do you know your advisors name?’ and ‘Do they know you and your family’s names?’,” says Gordon. “If the answer is no, you might want to think twice about the advice you are paying for.”
“There is nothing wrong with being in an active (e.g. mutual funds) or passive (e.g. index funds/ETF’s) environment, but making sure that your advisor is in tune with your financial reality and creating a portfolio that allows you to achieve your goals is paramount.”
2. Review your investment options
Whether you are investing $500 dollars or $10,000, it’s important to know your options. If previous investment options are not working out the way you anticipated it’s a good time to reevaluate your preferences and learn about the latest portfolios and market values from a trusted financial planner.
“There are many people who exclusively deal with a bank branch, but do not really have a consistent advisor that they meet with to monitor their portfolio and ensure that it is doing what they set it up to do,” says Gordon.
“If people are paying several thousand dollars a year in fees they should have service levels from their advisors that reflect this, [such as] formal financial plans with investment policy statements that get updated on an annual basis.”
3. Research long-term facts about the real estate market
If you are looking to buy a first home or upgrade to your dream home, spring is the time of year when people commonly decide to start buying and selling, and that means you can feel pressured to move quickly.
“[It is] crucial to understand what you can get and what you should get,” Gordon says. “Often people are overspending due to emotionally driven decisions without understanding the long-term impact these choices can have on their financial futures.”
If you enter into a bidding war for a home in the spring market, Gordon advises to sit down with your mortgage and financial advisor first.
“Understanding what you can qualify for prior to entering a bidding war can allow you to remove conditions of finance from your offer, which is essential in this market to win a bid,” says Gordon.
“Your financial advisor can show you the impact of what different mortgage levels/payment streams will have on your overall financial plan and allow you to choose a price point that makes sense financially and not just emotionally.”
4. Make a will and/or a Power of Attorney
Regardless of your age, it is always a good idea to have a will and/or power of attorney. Your will needs an executor that can carry out your wishes and be responsible for paying any remaining debts or taxes, as well as two powers of attorney (POA).
“If you do not have a Will and/or Power of Attorney then now is the time to start implementing one,” says Gordon. “When people pass away prematurely or become incapacitated due to poor health, having your wishes fulfilled both from a financial and health perspective is paramount to making sure you and your loved ones are taken care of in the manner you wish.”
It’s also worth paying for a professional to look over your plans instead of doing it entirely on your own.
“Meet with a lawyer versus using a Will Kit from a store,” says Gordon. “This is too important an issue to try and save money on and a good lawyer who draws up the right plan is worth far more than the fee they are charging you.”
5. Review your overall risk management plan
Any uncertain event or condition that may affect your financial life is a risk. Spring is the perfect time to sit down with a good financial planner or insurance agent to help you review your overall risk management plan.
“I am always astounded at the number of people who buy homes at this time of year, yet have nothing in place if an income earner becomes sick/injured or dies prematurely,” says Gordon. “It does not have to cost an exorbitant sum of money to implement, but is something you need to consider.”
Other issues possibly affecting your financial risk can include the economy, legal situations, or business risks, and calling in an expert who understands those extenuating factors can be a huge relief.
6. Use your tax refunds wisely
“While it is very tempting to use a tax refund for experiences or to buy that 70 inch TV you have been eyeing, putting that money to work for you will have a far greater impact on your long-term financial plan,” suggest Gordon.
“Whether it’s paying down your mortgage, high-interest debt or topping up RESPs or TFSAs, using your tax refund has to be looked at far more carefully than most people currently do.”
For now, consider putting the latest tablet, smartphone, or television on hold and ensure your future is secure first – after all, the latest updated electronic device is just around the corner.
As for all that literal spring cleaning and your desire to throw out those old receipts from tax seasons long ago? For CRA audit purposes it’s best to hang onto them for seven years, just in case.
