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Tidying Up Your Financial Life

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In a quarantine inspired Netflix binge, I recently started watching the show “Tidying up with Marie Kondo”. Marie Kondo, as you may know, is an organization guru who in the show travels the country giving advice on tidying up one’s personal space. Her approach is known as the KonMari method, and it involves six steps: commit yourself to tidying up; imagine your ideal lifestyle; finish discarding first; tidy by category, not location; follow the right order; and ask yourself if each possession sparks joy. As I looked around at all the clutter in my house, making a plan to spend some of my newly found free time cleaning up, I got to thinking about other ways we could apply Kondo’s method to improving our lives, and more specifically, our ‘One Financial Life’. Looking at our financial plan, or lack thereof, doesn’t really spark joy in many of us. In fact, many people would rather talk about death than money. But as Marie Kondo says: “Tidy up your space (finances), transform your life.”

1) Commit yourself to decluttering your finances and imagine your goals

At the beginning of every episode, Marie asks her guests to visualize their ideal life. You should also commit yourself to take control of your finances, then think about what your goals are — is it to save for a down payment on a home, build an investment portfolio for your child’s education, or to have the freedom to retire at a certain age? This is goals-based investing, where your goals are at the center of your investment portfolio and success is measured by how well your portfolio tracks against reaching that goal, not by how much any particular mutual fund outperformed the S&P 500. Its not always easy selling off an investment you have an attachment to. What if your grandpa gave you some Disney stock when you graduated high school? But ask yourself is this Disney stock helping me accomplish my goals or am I just holding on to it because I don’t know what to do with the proceeds?  The advantage to this approach is that by virtue of determining your goals, you are, in essence, imagining your estate plan, and then developing the investment strategy to make sure it is a success.  Estate plans aren’t just for the ultra wealthy, they are for anyone wanting to make sure their hard earned wealth passes in the way they want it to.

2) Get a list of everything you own

In the show, guests start tidying up their bedrooms by taking out everything in their closets and piling it on their bed in order to get a view of their belongings. Do the same — take a look at what you own. Start with your bank and brokerage accounts, where you can list down all your stocks, bonds, mutual funds, and cash balances. Look at any other investments you may have, such as real estate and investments in private companies or businesses. Next, look at your insurance policies, old company 401(k)s or other retirement accounts.

Make a list of everything you have. A great way to do this is by loading all your various financial accounts into a dashboard like Mint or working with a financial advisor who has access to planning software that allows you to take a look at your complete picture.

You might notice that you hold a significant portion of your assets in cash and are not taking as much risk as you should be, or that you are still holding remnants of poor financial decisions from a few years ago.

As you make the list of “what” you have, begin to think about the “who” in your life.  Make a list of those people or those causes that are closest to your heart and begin to think about if today were your last day, who would you want to pass your assets to.  In addition, who would you like to be in charge of your financial and healthcare decisions if you are unable to?  If we look around today, we are seeing this come into play everyday, given the current pandemic.  Current events should be proof to us that we all have to plan for the unforeseen event.  Better to have a plan that you have made, then one that you had no part in.

3) Finish letting go

Now that you have a good view of your entire financial picture, it’s time to start looking at whether you actually need all these investments.

Do you have multiple funds with the same market exposure, small positions, or brokerage accounts in other countries that you’ve forgotten about? Do you have too many single stocks? Portfolios with too many securities spread across too many accounts can make it difficult to monitor and track.

Simple can be beautiful — you do not need dozens of mutual funds to build a diversified portfolio. Any holding that represents 1% of your portfolio is not going to make much of a difference in terms of performance: if it went up 100%, your entire portfolio would only move by 1%.

By the same token, you don’t need an extremely complex Estate Plan to ‘tidy up’ your affairs.  A simple Will, Power of Attorney and Healthcare Power of Attorney will put a plan in motion, with the people you trust, and provide the peace of mind to know you are ready for anything.  Further, once you have established a foundation, it will be easier going forward to tweak the plan as your life evolves.

4) Does it spark joy?

Kondo believes in keeping only those things that speak to the heart and discarding items that no longer spark joy. Thank them for their service, then let them go. But just remember — what should spark joy shouldn’t be the most exciting investments in your portfolio, it should be what gets you closer to your goals. If it sparks joy, but you can get something similar at a lower expense, throw it away. There won’t be much joy left in a few years when you realize all your returns have gone to paying fees.

Transform your investment portfolio with a purpose in mind. Establish an Estate Plan with your guidance in how it is to be carried out.  Tidying up your finances and taking control of your One Financial Life means giving yourself choices and priorities. The likely result will be more joyful than organizing your closet.

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