Do You Need Some Financial Flossing?

October 31, 2014

Recently I was talking with one of my coworkers and I said the following about something at work “It’s like flossing…I know I need to do it, and I do, but I try to find ways to postpone it as long as possible!” He thought it sounded like a blog topic about the financial lives of so many people, so here we are! What are some things that we KNOW we need to do financially, but they are so “not fun” that we either don’t do them or we keep putting them off indefinitely?

Estate Planning: No one, and I mean NO ONE, gets excited about drafting wills and healthcare directives (not even my friends who are estate planning attorneys!). Even though no one wants to get their estate plan finalized, it is very important that we all do. As we learned in “The Lion King,” the circle of life impacts us all. At some point, every single one of us will have to confront illness, injury or even our own death. Having your will, powers of attorney, and healthcare directive/living will in place can protect you and your family members when it matters most. What can you do? Stop procrastinating, find an estate planning attorney, and get your estate plan done!

Budgeting: For every person who can’t stand the thought of estate planning, there are dozens who think budgeting is even worse! Any time someone comes in to talk to me about budgeting, as soon as they say the word “budget,” there is either a sigh or a groan. I have NEVER heard excitement from a person wanting to discuss their budget. I would go so far as to say that flossing and root canals get more enthusiastic responses than budgeting. What can you do? Put in a legitimate effort to track your expenses. When you know where your money goes today, you are then in a position to control where it goes in the future. I use mint.com and this Expense Tracker to track my spending. Once I know what I’m spending my money on, I can make decisions about what I can reduce (dining out, vacations, gifts, etc.), what has no flexibility (mortgage, rent, fixed loans) and what might have to be increased (groceries when dining out is reduced, insurance costs, gas/oil). You can do the same thing and learn where your spending is happening and decide to cut back in areas that you probably have a hunch are a bit high.

Asset Allocation: Everyone loves to talk about investing. There are books, TV shows, newspapers, magazines, newsletters, and the list goes on and on of resources all devoted to the topic of investing. There is a whole lot of sizzle about what stocks to buy, what stocks to sell, where interest rates are headed, and how the latest news cycle will impact the stock market. People love that stuff! But largely, it’s far less relevant than the boring vanilla subject of asset allocation. In the world of investing, there are a lot of studies that show that asset allocation is responsible for 80-90% of your overall return. That’s HUGE! The other factors, what stock to buy or sell and the timing of the buy/sell, combine for a total of 10-20% of your overall return. Yet, that 10-20% is where all the sizzle and excitement are. The 80-90% factor gets as many people excited as flossing. What can you do? Look at your overall asset allocation. What percentage of stocks vs. bonds vs. cash do you own? Take a risk assessment. Your risk level and time horizon can help you determine an appropriate asset allocation. Look at where you are vs. where your profile suggests you should be at least annually. Make changes if they are called for. In 2008, many people got hammered in the stock market because during the upturn of the prior few years, people had not re-allocated their accounts and their stock percentage had gone up significantly. When the market turned south, their asset allocation was out of line and the market decline was even more impactful. Take the time to review your asset allocation, even if it lacks a certain excitement.

If you can handle the absolute lack of excitement that comes from things like cleaning the house, matching socks as they come out of the dryer (where DOES that one missing sock go?) or flossing on a regular basis…you can significantly improve (not just by a little bit, but by A LOT) your financial life with a few mundane “to do’s.” The toughest part is getting started. Pick a day. Pick a time. Get one of these done. Then…do it again. And again.