Organizing Finances in 2017 – (Q & A)

Jan 2017


Dear Rick:
My 2017 New Year’s Resolution is to finally organize my finances. I haven’t done anything from a financial standpoint for the last five years and that includes not filing my federal or state tax returns. The last returns I filed were in 2010. My investments are a mess as I have all my money in cash. I also haven’t done anything from an estate planning standpoint. I think the beneficiaries of my IRA and 401(k) are my parents who’ve passed over 10 years ago. I am in my mid-50s, divorced with no dependents. My question to you is where do I start? My gut feeling is that I should start with my investments because I’m currently getting no rates of return. In that regard, I think I can handle the investments myself, I just need to get organized. What do you think?

Dear Max:
I first want to take this opportunity to wish you a very happy, healthy New Year. I think it is wonderful that you want to get your financial house in order. I know it seems overwhelming; however, the first step is always the toughest, and in your situation the first step is recognizing that you need to get your act together.

In reviewing your situation, I believe you should first start with your tax situation. After all, the fact that you have not filed your tax returns for a number of years, leaves you open to all sorts of problems. In addition, because you have not filed your returns, you could be in a situation where interest and penalties are accumulating. Furthermore, it is not fun if the IRS and/or the State of Michigan begins to take action. Therefore, the first thing I would do is take care of your tax situation.

Once you have accumulated all your tax data and have turned it over to a professional, then I would tackle your investment situation. The question you need to ask yourself is wheter or not you are the one who should handle your investments or should you hire a professional. The question is not do you have the knowledge to handle your investments but rather, do you have the time and the energy to do it. Handling your investments is sort of like tending a garden. You can’t spend time setting up a garden and then put it in automatic pilot and ignore it; unfortunately, it doesn’t work that way. Just like a garden needs regular maintenance; the same thing can be said about a portfolio. Portfolios have to be pruned at different points in time as well as rebalanced. What you need to ask yourself is do you have the time and the energy and more importantly, will you take care of your portfolio moving forward. The fact that for the last five years you haven’t done anything with your portfolio leads me to believe that you may want to consider hiring a professional. A professional financial advisor will take your goals and objectives and risk tolerance level and develop and maintain a portfolio for you.

All too often too many people in the financial world are salespeople and little more. That is why if you are going to hire a professional I would encourage you to hire a fee-only advisor. A fee-only advisor doesn’t work on commissions and therefore, they’re not as worried about selling you products. They’re more concerned about helping you achieve your financial goals and objectives.

Once you have your tax and your investments moving forward, then I believe the next step is to look at your estate planning needs to make sure that you have the proper documents. Being single, one of the most important things for you is to make sure you have up-to-date medical and durable powers of attorney. If something happens to you, you want someone who loves and cares about you being able to step into your shoes and make decisions on your behalf.

Getting one’s financial house in order has to be one of the more popular New Year’s Resolutions. It is also one of the more important resolutions you can make. We live in a world that is ever changing and it has become more and more important for us not to put our financial affairs on automatic pilot, but to recognize that we constantly have to look at our financial affairs and make adjustments where necessary. I recognize that taking care of our personal financial affairs can be somewhat of a burden and a hassle; however, what we all need to think about is what the alternative is. The alternative is not having your financial affairs in order which can cause you all sorts of problems, particularly in the situation of a family emergency or crisis. Therefore, for everyone, getting and keeping your financial affairs in order is not a luxury, it’s mandatory.

Good luck!