Pre-Retirement House Cleaning: Clean Out Your “Financial Junk Drawer”

August 01, 2018

Do you have a junk drawer in the kitchen?

Over the years, I have asked hundreds of people this question. All admit to having a junk drawer. One day a person answered me with a straight-faced “No.” I was surprised because everyone admits to having a junk drawer somewhere. Then, with a growing grin, he admitted, “just kidding! It’s in my home office.” We both laughed!

The concept of a junk drawer is a common reality for many. It often represents a collection of items with no apparent order or purpose. It contains stuff we may need but can’t seem to put to use or throw away. It can even represent open projects we have been putting off like a broken handle that fell off the bathroom cabinet years ago.

What’s in your junk drawer?

For many, it’s a dead flashlight, old TV remote, small extension cord, last year’s cell phone, random tools and maybe an indiscriminate screw or fastener. Of course every time you open it, you vow to someday “clean that thing out!”

So why all this talk of junk drawers?

As I have helped others with their financial lives over the years, I have found most people have a “financial junk drawer.” It has characteristics very similar to their kitchen junk drawer. This tends to be full of random financial products acquired over the years with no apparent purpose or strategy. It often represents a range of various accounts, policies, and documents that are not organized or coordinated in any meaningful way. Paper piles up over the years and it’s no wonder why some can have such a hard time making financial decisions.

Some examples

There might be an auto or home policy with inconsistent deductibles or coverage limits. Maybe an old 401k is left over from a prior job. It needs to be rolled over to an IRA, but you are not sure exactly what to do. Sometimes it’s a savings account earning “point nothing” from the bank. Because we lack clarity on our financial goals, it sits inactive with no direction or purpose. A junk drawer item!

Imagine someone with numerous 403b accounts from a range of prior employed school districts. What a mess dealing with the endless flow of mail from each account. As you can imagine, poor outcomes result from this kind of environment.

We follow a 5-step process to help our clients get organized:

1. Take an Inventory

First, make a list of every account, policy or financial instrument you own. Distinguish each one by type—checking, savings, money market, IRA, brokerage, annuity, insurance policy, trust, liabilities, etc. Next, list the institution or entity where the tool originates—bank, investment firm, insurance company, etc. Then, list related key information—account balances, cost basis, interest rates, payment terms, policy dates, etc.

2. Identify the Risks You Face

Look to the future and identify what economic risks and threats you face. These risks might include: litigation, inflation, market, survivorship, longevity, long-term care or legacy. Write these risks down and work with a financial professional to better understand and quantify these risks.

3. Prioritize Your Concerns

Rank the risks you face by the level of concern with the one you’re most concerned about at the top. This step will help you get some traction on which risks are more immediate and/or sizable in nature.

4. Focus on Purpose

Consider what’s important to you. You may have goals of saving more money, finishing a degree, building a business, getting out of debt, becoming financially independent, securing a “happily ever after” retirement or structuring your estate so it can pass purposefully to the next generation. Always come back to the question, “What’s the money for?”

5. Develop Strategies

Construct a range of meaningful financial strategies to help mitigate risks and ultimately help you reach your goals. Here is where you may need some professional assistance. Greater efficiency and increased confidence often result from these steps.

I have personally facilitated this process with hundreds of clients. It is a most rewarding experience for them. Clients reflect a feeling of peace and a sense of completion by cleaning out that proverbial financial junk drawer!

It’s time to get organized! Call us for some assistance. You will be glad you did.