Take five steps if you're looking for a simpler financial life
Managing your finances can be difficult in these complex times. All too often, people become overwhelmed and merely muddle along with scattered investments, poor recordkeeping, and little or no direction. But you may be able to improve your life and simplify your financial affairs with these five steps.
1. Take stock of your situation. Before you can reduce the clutter, you must figure out exactly what you own. Go through the stacks of your financial papers to list all your holdings. Don't forget to check your safe deposit box, file cabinets, and closet shelves for records of investment accounts, retirement plans, and insurance policies. Locate the latest copy of your will and other estate planning documents.
2. Organize your finances. Once you've assembled the pertinent financial information, divide it into categories. For instance, place all the insurance materials in one folder and retirement account materials in another. Note where the folders will be stored. You can keep track of these records through a spreadsheet, some other software, or a paper ledger if you're not computer-savvy. No matter which method you use, make it a habit to update your status periodically. Otherwise, you'll soon find yourself back in the same state of disorder.
 3. Consolidate. Frequently, confusion arises when the same types of accounts are replicated. Apart from the concern for keeping your accounts under the FDIC insurance limit, do you need to maintain multiple accounts at different banks? It's usually more practical to keep all your savings and checking accounts with one bank. Similarly, if you've opened several IRAs with different institutions over the years, you might consolidate them under one provider. This assumes you will have enough flexibility in your investment choices.
4. Streamline broker services. As with your bank and retirement accounts, it may make sense to use only one or two brokerage firms to handle all your investments. If you're concerned about the failure of a single brokerage firm, check the Securities Investment Protection Corporation (SIPC) coverage on various accounts. Transferring your holdings will involve some paperwork, plus you may owe tax resulting from securities sales. Be sure to take the tax consequences into account before you start moving investments around.
5. Review your portfolio. Now that you have a complete financial picture, assess your investment approach. Does the current allocation of assets still meet your needs? Should it be revised to reflect changing conditions or impending retirement? At the very least, fine-tune the holdings based on your latest objectives and time horizon.
To be effective, simplification requires real commitment. But it can pay off in future benefits.
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