Financial Clutter - Part 2
What about taxes?
Now there’s clutter if I’ve ever seen it. Sorry, I don’t mean to joke about something so important. Taxes are, however, a major issue for anyone who earns (active or passive) income. There’s an old saying that death and taxes are the only things in life that we have to do. I don’t know if that true, I think eating and breathing are pretty much have to’s. But, that’s not the point. The point is that it’s something that important and should be given its proper attention. Yet somehow, it falls short on our list of priorities until April 15th of each year.
I don’t know this for a fact, but I speculate that many, if not most, people pay more in taxes each year than necessary. What if you could save ten, fifteen or even twenty percent of the money you spend in taxes each year? I think for many people that might be possible.
I’m not an accountant and don’t profess to be one. However, I’ve seen many situations over the years where, if a client would have taken a little more time and spent that time researching the rules about taxation that they would have been able to save a considerable amount of money each year by thinking about how they could benefit about those rules and acting on them.
I hate to say it, but taxes are a normal part of our financial clutter. It’s a part of your life. It takes up your time, energy and hard-earned money and funnels it somewhere other than where we want it to go. The time you spend learning and utilizing the information you learn about taxes could save you a lot of money over the years. But, it’s just another part of the clutter.
Here’s a lesson that I believe we all need reminded of on occasion: There are only twenty-four hours in a day and 100 pennies in a dollar. You can’t spend more of either than what is allotted.
Retirement, Investments and Savings
Speaking of 100 pennies, this is another subject that needs to considered clutter. Think about it this way. For every investment you currently own, there are dozens if not hundreds of similarly structured investments that you could, and probably should be, considering as an alternative. Each of them was designed using a specific target market that were designed for. Each having a specific risk factor allotted to them. Each having their own internal expenses and turnover rates. And the list goes on.
Now take that part of the review process, and add to that the world and U.S. economies, the federal fund rates, the political party in office, and current market conditions. Once you’ve gone through that, you’ll need to consider something else, where does this investment fit into my portfolio and how much, as a percentage, should be allocated to this one investment?
You need need to consider a diversified portfolio if you are looking to mitigate risk. And if that’s the case, to what extent do you want to spread the risk? What market classes should you use? Where does it appear that the market is going? And, oh yes...what are the tax implications?
One other thing. If you invest outside of your retirement account, should you consider each investment class separately from the assets you are holding inside your retirement account(s)? Does what you are doing with your retirement account(s) conflict with what you are doing outside that vehicle?
Also, don’t forget about your bank accounts either. Which bank is the right bank for you? How do you know? How much should I have in the bank? How is the amount there related to your retirement and investment account(s)?
For your sanity, I’m going to stop here for now. I think you get the gist of what I’m trying to get at. Financial Clutter exists. There are many other areas that we can hone in on if you want. They’re all time consuming and costly.
Is there a method to the madness?
Of course, there is. But let me clarify this. You can’t ever eliminate the financial clutter in your life. The best you can do is get it to where you can see it and understand what it’s doing in your life. But doing that will help you in numerous ways. It can save you time to use for better things. It can save you money by possibly reducing your taxes or spending less on expenses that you didn’t even know about. It can place you in a position to possibly make better returns on your investments. Most importantly, I can give you peace of mind. What would that be worth?
Financial clutter is a part of life. Think about it as walking across a brook. You can either wade through the water (clutter) or you can use the steppingstones to keep your shoes dry.
It’s always your choice.
I’m your Financial Clutter Buster. Give me a call or simply fill out the form on this page and I will show you how to organize your financial clutter.