Do you have a junk drawer in the kitchen? A little confused at why I would ask the question, most follow along and then respond, “Well…Yes.” One time I asked the question and the person said with a straight face, “No!” I was taken back because virtually everyone admits they have a junk drawer. Then, with growing grin on his face he said, “Just kidding, it’s in my home office.” We both laughed!
The concept of a junk drawer is a common reality for most Americans. It often represents a collection of items with no apparent order or purpose. It contains stuff we think we might need, but can’t seem to throw away. It can even represent open projects that we haven’t gotten to yet like that cabinet handle that fell off years ago we have promised to fix. I call these, “someday jobs!”
So, what’s in your junk drawer? I’ll bet you will find a dead flashlight or two, old cell phones and charging units, a broken or old TV remote, a small extension cord as well as various power supplies for who knows what, a few random tools and of course an array of screws or fasteners. And of course every time you close that drawer, you vow that someday you are going to take the time to “clean that thing out!”
Why all this talk of a junk drawer? As I have helped others over the years with their financial lives, I have found that most people have a corresponding financial junk drawer. It has characteristics very similar to their kitchen junk drawer. This drawer tends to be full of random financial products that the person has acquired over the years. Its contents include a range of various financial accounts, policies or documents that are inherently important, but are not organized or coordinated in any meaningful way. It’s not surprising that many are confused when trying to make sense of important financial decisions in their lives.
Sometimes we have auto or home policies with inconsistent liability coverage limits or deductibles. We might have that old 401k that was left over from a job change a few years back. We know we need to roll that to an IRA, but not quit sure how, or that burgeoning savings account with a very large balance earning “point nothing” from the bank. I see this often with my pre & post retiree clients. The unreasonably high balance may have resulted from a prior real estate sale or small inheritance, but because they lack clarity on what to do with it, it sits inactive.
I had one client with five 403b accounts from previous school districts where she worked. What a mess dealing with the seemingly endless flow of mail from each account. Random group benefits from work can even clog up our financial junk drawer. Do we need these so called benefits or is there a more efficient strategy? Most are confused, so there they sit in our financial junk drawer.
As you might imagine, poor outcomes result from such an environment. Make a commitment to sort out your financial junk drawer and organize it into an array of meaningful financial strategies that can address the economic risks you face.
Here are 4 simple steps to get your financial junk drawer de-junked!
First, make a list of every account, policy or financial instrument. Distinguish what type of tool it is (checking or savings account, IRA, brokerage account, annuity, insurance policy, debt, etc.). List the specific institution or entity where the tool originates (bank, credit union, insurance company, work, etc.). List the account balances, policy limits, interest rates, payment terms, important dates and premium amounts, etc.
Second, stand back and take a broader view of your financial life. Identify what economic risks you face. These risks might include liability exposure, inflation, market volatility, interest rate, survivorship, longevity, long-term care or legacy risk. Write these risks down and then prioritize them by concern.
Third, consider what’s important to you from a financial perspective. Saving more money? Finishing your degree? Building a business? Getting out of debt? Living within your means? Being financially independent? Securing a “happily ever after” retirement? Passing assets intelligently to the next generation?
Finally, construct a range of meaningful financial strategies by reaching into your financial junk drawer aligning various instruments into purposeful stratagems to help mitigate threatening risks. After this exercise, what often remains are unnecessary accounts or policies that can be discarded, meaning closed or consolidated. This results in increased simplicity and mental clarity.
As you go through these steps, it is essential that your movements, like pieces on a chessboard, be vertically aligned with what matters most. I have personally facilitated this process with hundreds of clients. It is a most rewarding experience. Clients reflect a feeling of peace and a sense of completion when finished. De-junk your financial junk drawer today! You will be glad you did.