THE PITFALL OF FINANCIAL SPRAWL
Happy New Year from your team at Nvest! As you turn the page to 2024, is this a good time to reflect on your financial big picture? Is it appealing to make financial life simple?
Many clients in the Columbus area, as well as other urban areas, are well aware of urban sprawl. It’s seems to be a growing concern and frustration. Developing and sticking to a “grand plan” can be challenging for local politicians. Despite good intentions, communities often deviate from the grand plan as differing views and priorities are brought forward. These quickly distract from the big picture.
Sprawl can occur for individuals as well. For example, it is easy to get pulled in more directions than time permits. It’s also easy to create “financial sprawl” over many years. If not intentional, one can find themselves with multiple savings & checking accounts, old retirement accounts inappropriately invested, a stock or two once considered a “slam dunk opportunity”, insurance and/or annuities misaligned relative to current goals, and perhaps various credit cards. Sound familiar? When and how is it appropriate to simplify or correct personal “financial sprawl”?
One of our core financial philosophies at Nvest is to keep financial life simple. Keep your finances organized, efficient, and manageable. Follow Benjamin Franklin’s advice – ”A place for everything, everything in
its place”. A few more Nvest core principles: No investment or product should ever control you; Avoid insurance products which claim to offer investment like returns (ie. whole life, annuities, etc.); and be wary of products that promote outsized returns but sacrifice liquidity (REITS, alternative investments, private equity). There are no “free lunches” with financial products.
Retirement accounts with pre-tax contributions (401k’s, 403b’s, other IRA’s) can be consolidated into one IRA and invested appropriately for the time horizon and purpose of the account. Investment performance becomes cloudy and difficult to manage as the number of accounts increase; RMD calculations can become complex and cumbersome. Requesting distributions from multiple accounts can be time consuming and frustrating. Some custodians even require notarized paperwork (!).
Utilizing multiple banks, each with savings and checking accounts, creates challenges for understanding cash needs and expenses; financial life can feel overwhelming. The same is true for holding or using multiple credit cards. Are each of these accounts truly necessary and appropriate, or just adding complexity?
Regarding insurance, we encourage clients to regularly monitor and adjust. Consolidate products via a 1035 exchange (avoids taxable income). Is the product or policy still appropriate? Perhaps you no longer require life insurance, in which case closing the policy and receiving the cash value might be appropriate.
As your financial life is streamlined, it becomes easier to maintain an intentional asset mix and big-picture investment strategy. Developing a clear withdrawal strategy to support living expenses can help avoid “lumpy” withdrawals, which thereby assists to minimize tax liabilities. Importantly, avoiding “financial sprawl” helps a spouse or loved one understand and administer your financial affairs (goals) if/when you someday require assistance; estate planning can be simplified too.
If you feel you might be living with “financial sprawl”, we are happy to help. We regularly help clients simplify their financial life and thereby maximize its potential. Knowing one’s finances are simple and organized is a big step toward “financial peace of mind.” That’s our ultimate goal. Please reach out if we can assist!
Jordan Ranly | Nvest Wealth Strategies®