Organizing your financial life can feel just as rewarding as cleaning out the infamous junk drawer in your house. It’s easy to let life get in the way of keeping tabs on all aspects of your finances. Here are the main cleanups that can help you reduce the clutter.
Previous employer plans. According to the Bureau of Labor Statistic’s 2019 survey, most people will work for about 12 different employers over their lifetime. Even assuming just 50% of those employers offer a retirement plan, it’s easy to end up with several old employer plans littering your financial picture. An easy cleanup is to consolidate your previous employer plans into either an IRA or your current employer’s plan. You’ll have some legwork to get this done as most plans require paperwork to roll money out, but the payoff will be worth it. Say goodbye to all those separate statements each quarter!
Accounts set up by parents. Parents like to set their kids up for success. For many, this can mean establishing an investment account when their kids are young. These accounts can float in a financial grey area with parents no longer maintaining them but the adult children not up to speed on their registration or even existence. Some accounts, such as Roth IRAs and Traditional IRAs are important to know about and keep tabs on so you make sure the contributions are coordinated with your tax returns and earned income. For other account types, such as UTMAs/UGMAs, reregistration might be required. Because an UTMA/UGMA becomes the beneficiary’s money at the age of majority, if your parents established this type of account but never officially turned it over to you, you’ll need to reregister the account in your name before you can access the investments.
Physical stock shares. Many investors have sentimental stock certificates that were gifts from grandparents or close relatives. Holding physical shares can be risky – they’re easy to lose and near impossible to replace. To offer a more secure holding spot and also allow for flexibility, register your physical shares in book-entry from at a trusted custodian. By converting your physical shares into book-entry shares, you’ll no longer have the physical certificate but you’ll be able to track your holdings online and via custodian statements. Having your shares in book-entry also allows flexibility if you decide to sell or buy shares because they’re already at the custodian to perform the transaction. It’s normal for stocks to have paid dividends in book-entry shares and/or stock splits that go to a custodian in book-entry form so this consolidates all of your holdings into one custodian too.
Life insurance policies. Life insurance policies can be confusing and sporadic. Many people have a combination of whole life, term life, and/or group term policies. Life insurance serves an important purpose in risk mitigation but what is often forgotten is that risk exposure and capacity change throughout life. What might have been appropriate coverage in your early 30s is different in your mid-40s and late-60s. Take an overall accounting of what your current coverage entails, the premiums, and see if you need to add coverage, consolidate holders, or get rid of expensive coverage you’ve outgrown.
Start small and declutter your financial life. When you successfully consolidate and organize your financial life, your focus becomes clearer on the areas that need more love or the areas in which you’ve nailed it.