Four Tips for Some Financial Spring Cleaning

The American College of Financial Services
April 1, 2020

Springtime is here: a time marked by the age-old ritual of CLEANING. We crawl out of hibernation to face the chores we’ve ignored all winter. It’s a time of rebirth, decluttering, and organization. Take this as an opportunity to not only clean out your fridge, but clean up your finances.

If you’re a financial advisor looking to use the change in the seasons to re-engage with your clients and lay out some goals for the coming months, here are four simple steps you can take to bring that spring cleaning philosophy into your professional discussions.


1. Reassess the situation


Before you can help your clients with a proper financial cleanup, you first will need to know where they currently stand on a number of issues, from assets in hand to lines of credit, potential problem debts, and more. This is the time to sit down with clients and have an open, honest discussion about their situation. Did the past year work out like they planned? What are they thinking about in terms of finances? Are there any big topics they want to tackle in the coming year, and if so, what needs to be done to make meeting those goals viable?

A good way to start things off could be a credit report check. Showing your clients where they stand with credit and providing an explanation why, as well as some opportunities to improve their credit score, can be a good lead-in to a discussion about goals. In this same vein, perhaps there are some looming debts or poor spending habits your clients have been following that could stand to be changed or dealt with. Check the status of investments in their portfolio and see what’s paying off and what isn’t. A reexamination of spending habits, along with a comprehensive overview of their financial picture, can help you convince clients they’re in need of a spring cleaning. It’s also just a smart way of showing clients you care about their well-being and building a stronger advisor-client relationship.

This review process can even extend to household budgets. What are your clients’ spending habits that could hamper them from reaching their goals? On the other hand, what are they doing right that’s putting them in a better situation--saving for retirement, refinancing loans and mortgages, etc.? Take into consideration the current state of the market when making these decisions, and make sure you’re informed enough on what’s going on to make recommendations to clients that will translate into satisfying future gains.


2. Clear out the clutter


Now that you and your clients have formed a general picture of where they’re at, it’s time to toss out what they don’t need anymore. Many financial documents people accumulate don’t have to be saved, and even if they do, they can be stored in a digital file format rather than taking up unnecessary physical space. In addition, keeping old documents lying around leaves clients more prone to identity theft or other kinds of financial crime, and this is why it’s important never to just throw out any kind of personal information--shred anything and everything.

With that said, however, it’s important not to let clients go overboard with the cleanup. Financial documents that should be kept and saved include tax return copies, records of supporting tax deductions, payroll tax records, and documents to support an insurance claim. For others, including 401(k) account information, be sure your clients know where and for how long they can access digital copies of their records before getting rid of paper ones.

There are a number of documents clients can safely shred as well, from utility bills, receipts, and reconciled bank statements to cancelled checks and many kinds of financial services correspondence (unless they feel it’s very important to them). A basic rule of thumb to advise your clients on shredding is this: if the paper is from the government (federal, state, or local) or supports something submitted to the government, like a tax return, keep it on file for seven years. Everything else, shred. And ALWAYS ensure you have digital copies available if possible.


#3: Establish good habits


Once unnecessary clutter has been cleaned out and all impediments to focus removed, work with your clients to set some new ground rules for their financial plan. This could start with something as simple as getting even more into the spirit of spring cleaning and getting rid of household clutter--but don’t throw it out! Encourage your clients to donate items to a local charity, and make sure they get a receipt. With this year’s tax filing deadlines extended to July 15, giving to charity is an easy way to claim a tax deduction.

In addition, if your clients haven’t considered automating their savings yet, now might be a good time to start. With investment portfolios in turmoil due to market uncertainty, being able to put tax-free money away in a place where it can accumulate untouched over time is looking better and better as a method of retirement planning. Encourage clients to use those 403(b) or 401(k) accounts for all they’re worth, especially under the expanded guidelines the SECURE Act allows for. After all, a client saving even 10 percent of their income in a retirement account each year can rack up to an impressive sum with consistent contributions and careful planning.

It’s also a good time, if your clients are still worried about their ability to make ends meet, to talk about their home budget. Are there unnecessary expenses that could be cut out of that financial plan? Are there some bills they’re paying too much on, or others too little? Taking a personal interest in your clients’ well-being is a good precedent to set when you’re trying to start off the spring on a positive note.


#4: Set a new path forward


With all of this said, it’s time to work with your clients to decide on a way to move toward their goals. Step one could be rebalancing their investment portfolio. If your clients are closer to retirement and are getting nervous about keeping their money in the market, perhaps moving it to an annuity or another more stable asset is the right move. If the client is younger and has more time for their portfolio to bounce back, maybe a simple reorganization of allocation is the best thing to do.

If your clients are of a certain age, an estate plan might also be an important consideration. Have they thought about where they want their assets to go, or whom they should go to, once they’re no longer here? It may not always be a cheerful subject to consider, but taking care of children or other family and loved ones financially after death is one of the building blocks of a sound financial plan.

Finally, work with your clients on a plan to pay off their debt. Reevaluate based on priority, assets, and needs to figure out which debts need to be paid off now, and which could benefit from a longer-term plan: any one of these decisions can affect your clients’ financial well-being, including their credit score and ability to support themselves and their habits. As an advisor, use this spring cleaning reset to work with your clients and consider their needs, goals, and overall situation to offer sound planning tips.