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Organizing Your Financial Life

We all know a few of those people who are meticulous about organizing things, right? Some people’s closets are color coordinated, and some people have every box and Rubbermaid bin in their home labeled, categorized and stored in the order of how often they’re needed. Remind you of anyone? The truth is, this makes it easy for these folks to understand what they have, where it is, and what purpose it serves in their home.

The same is true for finances. While you probably look at your entire portfolio as a whole, a financial planner does what those diligent organizers do by breaking down your assets and compartmentalizing them into “buckets.” This allows your money to meet sometimes-conflicting goals, while also understanding what assets are where, and what their “label” or intended goal is.

Many clients come to us after during times of market volatility saying they want their money to be “safe,” in an attempt to protect themselves against losses. Studies have shown that Americans feel twice the pain from an investment loss than they do positive feelings for a gain of the same amount. Guarding against big losses is important, and keeping money in a safe place that’s easy to access is great for short-term needs. The problem with this approach is that most people need their money to last for a few decades. Separating some assets into more aggressively invested “buckets” can help stretch your money and maintain your purchasing power well into your retirement.

Keep in mind that somebody who retires at age 62 (when they can first start taking Social Security at a reduced benefit) still has a life expectancy of 82 years or longer. With inflation running at historic highs, if you retire at 62, you’ll need to grow your money even more just to maintain your purchasing power and lifestyle. 

So take a few minutes to think about how organized your financial life is. If your retirement assets are all piled up in one place and you’re feeling a little disorganized (kind of like my closet!), it might be time to reorganize. Spring cleaning can always be done in the summer or fall if you didn’t get it done last spring!

And as always, call us if you have questions. We can help you create different “buckets” of money to address and work toward all of your financial goals, simultaneously. This includes conservative investments for an emergency fund or short term needs (1 year or less), an income or balanced portion of the portfolio for the intermediate term (2-10 years), and a long term growth bucket to maintain your purchasing power for your future goals (10+ years). This way everything is clearly labeled and you know what you have and where it is. Mom will be proud.

Article by David Smyth, Senior Partner at Family Financial Partners — a financial services firm in Lexington, Kentucky.

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