Tidying Up Your Finances with Taylor Hoffman (and Marie Kondo)

Parents, we’ve got some great news: tidiness is cool.

Grab your popcorn because this year’s viral sensation is a Netflix series entitled Tidying Up with Marie Kondo, which, as the name suggests, is a show about how to organize your house.

We kid you not – not only did her Netflix special receive a coveted “Certified Fresh” rating from the media-critic curator Rotten Tomatoes (putting it on par with such blockbusters as Stranger Things and House of Cards), Marie Kondo herself was named one of Time’s 100 most influential people in 2015.

So what’s all the fuss?

Kondo’s shtick, though superficially themed on how to efficiently organize living spaces, radiates an underlying message that the process of de-cluttering can be a sort-of spiritual experience. Her philosophy is simple: by limiting material possessions to only those that “spark joy”, you can create a virtuous cycle of inner peace which filters through to the rest of your life.

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This got us thinking – why not apply Kondo’s organizational techniques to people’s financial lives as well?

There is certainly something to be said about keeping things simple, so here are four ways you can apply Kondo’s tidiness techniques to your financial life:

1. Take Inventory

Kondo’s first step to de-cluttering is to take inventory of your possessions, one category at a time. Make a list of the following:

  • Bank accounts (checking, savings, money markets, CDs)
  • Employer-related retirement accounts – (401k, 403b, 457, TSP, Deferred Comp, etc.)
  • Personal retirement accounts – (IRAs, Roth IRAs, SEP IRAs, SIMPLE IRAs, etc.)
  • After-tax investment accounts
  • College savings accounts
  • Trust accounts
  • Life Insurance policies
  • Annuities
  • Collectibles / anything else you’d consider valuable
  • Debts (credit cards, mortgages, home equity lines, auto loans, etc.)

Don’t stress about having to list everything all at once. If you get too overwhelmed, try tackling just one category per day. This is a crucial step, so it’s best to not burnout from the get-go.

 

2. Simplify

Once you’ve inventoried your finances, the next step is to figure out where you can simplify things. Unlike Kondo’s method, however, you won’t be asking yourself whether the financial item in question “sparks joy”, because, well, you unfortunately can’t write off a bill or loan payment just because it isn’t a beacon of joy in your life.

Rather, use this step to determine where you can de-clutter and streamline your household finances. Take a hard look at your inventory: how many checking accounts do you have? Savings accounts? 401ks and IRAs?

If you have a handful of bank accounts, remind yourself why you opened each account (and what it is currently used for). Maintaining separate accounts for specific purposes (i.e. daily checking, emergency fund, vacation fund, holiday money) is fine. If, however, you just haphazardly opened a bunch of bank accounts because one paid a slightly higher interest rate or another offered a ‘new customer welcoming bonus’, you may find it more practical to whittle your banking activity down to just one or two accounts going forward.

And as it relates to retirement savings, many people don’t realize you are allowed to take your 401k with you after you leave a job (by “rolling” it to an IRA). Or, on the flip side, you may have been proactive and rolled over your 401k after leaving old employers, but now, after doing this financial inventory, you see that you opened separate IRAs for each rollover. Again, ask yourself whether the status quo makes sense. In general, retirement accounts of the same class (i.e. traditional/pre-tax vs. roth) can be consolidated into just one account. In the long run you may find consolidation makes it simpler to implement and monitor a cohesive investment strategy, and will likely save a few headaches when it comes time for Required Minimum Distributions.

 

3. Consistency

Just as Kondo’s methods require consistency category-by-category in order to be effective, so too does building up (and protecting) a retirement nest egg.

After itemizing and then streamlining your financial accounts, you may realize you’re not saving as much as you’d like. If this is the case, make a budget and see how much extra you can afford to save each month. Then set up automatic transfers to a savings/retirement account at preset intervals for whatever that amount is.

It is also important to be consistent with your estate planning. Retirement account owners can name outright beneficiaries on their account. Such beneficiaries automatically inherit the account upon the owner’s death. In general, naming outright beneficiaries is more efficient than letting a will dictate who inherits those assets.

If you have multiple retirement accounts, make sure the beneficiary designations are both correct and consistent (if your wish is for the same people/organizations to inherit all your assets). Do the same with life insurance policies. Surprisingly, many people forget to update beneficiaries after major life events such as marriage, divorce, or births.

 

4. Maintain

Kondo touts that if you follow her techniques to a “t”, you will never have to de-clutter again the rest of your life. Admittedly, this will likely not be the case with financial de-cluttering.

Plan to repeat steps 1 – 3 at least once per year. Unlike cleaning your garage, financial “Kondo-ing” is not a one-and-done deal. Regular check-ins are crucial in your lifelong journey towards financial Zen.

 

Conclusion

You don’t have to be a multi-millionaire to achieve financial peace of mind. Just as de-cluttering your home can give you a sense of joy, accomplishment, and much-needed control, so too can de-cluttering your financial life.

Reach out to our wealth management advisors today for more ideas on how to organize your finances and to learn other helpful financial planning tips!

Disclosures:

Taylor Hoffman is an SEC registered investment adviser with its principal place of business in the State of Virginia. Any references to the terms “registered investment adviser” or “registered,” do not imply that Taylor Hoffman or any person associated with Taylor Hoffman have achieved a certain level of skill or training. Taylor Hoffman may only transact business in those states in which it is registered /notice filed, or qualifies for an exemption or exclusion from registration /notice filing requirements. For information pertaining to the registration status of Taylor Hoffman or for additional information about Taylor Hoffman, including fees and services, please visit www.adviserinfo.sec.gov.

The information contained herein is provided for informational purposes only, represents only a summary of the topics discussed, and should not be construed as the provision of personalized investment advice, or an offer to sell or the solicitation of any offer to buy any securities. The contents should also not be construed as tax or legal advice. Rather, the contents including, without limitation, any forecasts and projections, simply reflect the opinions and views of the author. All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change without notice. There is no guarantee that the views and opinions expressed herein will come to pass.

This document contains information derived from third party sources. Although we believe these third party sources to be reliable, Taylor Hoffman makes no representations as to the accuracy or completeness of any information derived from such third-party sources and takes no responsibility therefore.
Taylor Hoffman is not a Public Accounting firm, and the information contained herein should not be construed as tax advice. Rather the contents included are a reflection of the view and opinions of the author. There is no guarantee that the information provided fits every situation, and individuals should consult their tax advisor for more specifics.
Taylor Hoffman is not a Law firm, and the information contained herein should not be construed as legal advice. Rather the contents included are a reflection of the view and opinions of the author. There is no guarantee that the information provided fits every situation, and individuals should consult their individual attorney for more specifics.