The Life-Changing Magic of  Organizing Your Finances

The Life-Changing Magic of Organizing Your Finances

The Life-Changing Magic of Organizing Your Finances

“The calm, motivated mindset it can inspire.” Marie Kondo

I remember when I was a kid watching ‘Growing Pains’.  In one episode, Kirk Cameron’s character, Mike Seaver, had a big school assignment he needed to finish.  He sat down at his desk to do the work and noticed his room was a wreck.  Before he could do his homework, he had the strong urge to clean his room.  If you ever watched the show, then you know this act was completely out of character for Mike.  This scene perfectly illustrated how having areas of your life in disarray can take up space in your mind and prevent you from living optimally.

In Marie Kondo’s book, the life-changing magic of tidying up, the KonMari method of tidying promises to help you clear your clutter and enjoy the unique magic of a tidy home and the calm motivated mindset it can inspire.  Kondo says,

“Once you have experienced what it’s like to have a truly ordered house, you’ll feel your whole world brighten… This is what I call the magic of tidying.  And the effects are stupendous.  Not only will you never be messy again, but you’ll also get a new start on life.” [1]

This same result can be true when we look at our financial life.  Just like when a calmness falls upon us when our house is organized and tidy, peace will find us when we have our financial lives in order too.

 

Taking Inventory

In the KonMari method, the process starts with taking an inventory of the household by category.  Kondo has her clients start with placing every stitch of clothing in their home in one giant pile.  Having gone through this process with my family of four, I can tell you first hand, it is daunting and intimidating!  After the fact, I realized what I was accomplishing in the process of taking an inventory was really seeing what we had in its entirety!  If I had tackled this step room-by-room, instead of holistically, I wouldn’t have gotten my arms around the big picture of what we owned: the good, the bad, and the ugly (like that shirt I bought three summers ago and never wore!)

When we think of tidying your finances, it’s the same first step. We recommend laying out all of your statements in order to identify what you have and what you owe.  Print out everything and lay it out in an open space.  I find kitchen tables are the perfect venue.

These documents should include (but not limited to):

  • Checking and Savings Accounts
  • Retirement Accounts
  • Pension Statements
  • Investment Accounts
  • Insurance Documents (home, auto, umbrella)
  • Mortgage Statements
  • Credit Card Statements
  • Estate Planning Documents (trusts, wills, Power of Attorneys)
  • Tax Returns

When working with our clients at Creative Planning, we gather this information and put it into a net worth statement.  This step ensures clarity of current financial picture; just like with the KonMari process we are getting our arms around the entirety of what you actually have.

 

Does It Spark Joy?

If you have heard anything about the KonMari method, chances are you have seen a meme or read about the step ‘Does It Spark Joy?’  Taking the clothing example, you pick up each item and ask yourself if it sparks joy.  If the answer is no, then you discard the item and move on to the next.  If the answer is yes – it does spark joy, then you keep it.

In the case of your finances, every dollar you have saved is probably going to spark joy.  However, many of our clients identify assets that they don’t want to continue owning.  Our CEO, Peter Mallouk discusses this idea in his recent interview with Tim Ferris.

“And you start to unwind all of these things. So you spend the first 20 years of… accumulating all of this stuff. And then you’ll spend the next 20 years, if you’re like at least the clients I’ve observed, trying to get out of one thing after another to simplify your life.” [2]

After taking an inventory, ask yourself if this is an asset you want in the future.  If your answer is no, then we can help you by exploring options to unwind you as part of the process to your overarching financial plan.

 

Location, Location, Location

I cannot tell you how many times I have been in someone’s home and an Easter egg hunt breaks out in the form of searching for various financial documents.  Many times, the paperwork found will be outdated and/or the information will have changed making the documentation obsolete.  The first step after taking the inventory will be to discard unnecessary paperwork.  Then give your documents a home in one central place.  At least annually, review these documents and replace outdated documents.  When you coordinate these important documents in one place, it frees space in the mind.  Not only do you know where everything is, you can let trusted family members or friends know where to find these documents as well.   Marie Kondo continues with this subject,

“What if, for example, they need the contents of a document that they disposed of earlier?  First, because they have already pared down the amount of documents they own, they can quickly confirm that they do not have it, without having to search all over.  The fact that they do not need to search is actually an invaluable stress reliever.”  [3]

This is also a good opportunity to organize where your accounts are custodied.  If you have accounts at numerous financial institutions, it can take up unnecessary space mentally and space in your mailbox!  We help clients weigh their options on consolidation.

 

One-Stop Shop

The financial planning industry is siloed.  You may have an accountant, a business or estate planning attorney, and an insurance agent.  Creative Planning is uniquely organized having each of these specialists available to work for our clients under one roof.  This may be the single largest factor that we offer our clients that simplifies their lives!

 

Putting Your Life In Order … Puts Your Life In Order of Importance

At Creative Planning, we are known for investing our client’s money.  If you were to ask any of our 30,000 clients what we do for them, however, a great majority would begin by talking about how we helped them get organized.  They would start by talking about something other than their invested assets!

Why couldn’t Mike Seaver do his homework when his room was a mess?  One might say he was procrastinating and that certainly played into it.  It is also a micro example of how it’s hard to concentrate with a cluttered mind.  By addressing the clutter, you put yourself in the best position to fully appreciate the loves in your life – family, friends, interests, and hobbies!

 

[1] Kondo, Marie. the life-changing magic of tidying up: the Japanese art of decluttering and organizing. Berkeley, Ten Speed Press, 2011.

[2] Ferris, Tim, host.  Peter Mallouk – Exploring the Worlds of Investing, Assets, and Quality of Life  #356, The Tim Ferris Show, 17 Jan 2019.  https://tim.blog/2019/01/17/peter-mallouk/

[3] Kondo, Marie. the life-changing magic of tidying up: the Japanese art of decluttering and organizing. Berkeley, Ten Speed Press, 2011.

 

Colleen E. Maldonado, MBA, CFP®
Wealth Manager
[email protected]

 

This commentary is provided for general information purposes only and should not be construed as investment, tax or legal advice. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.

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