Spring Clean Your Finances

By Michael Schoonmaker - March 26, 2018

The tradition of spring cleaning—from top to bottom, inside and out—dates back to ancient times in different cultures , most claiming the benefit of a fresh start. Removing the cobwebs from your financial habits also has benefits, one of which may be to help set you on course for the future you want.

Here are some tips to help keep your finances fresh.

1. Spruce Up Your Emergency Fund

Nothing derails your finances faster than an emergency if you haven't saved for the unexpected. It's a smart habit to set aside roughly three to six months of living expenses. That keeps you from using credit or dipping into investments earmarked for other goals, like retirement. Start with small contributions and increase them as you can.

2. Create a Sweeping Financial Plan

You have goals in mind—a new house, a college education and, of course, retirement. That's a good start, but an actual documented plan can be a roadmap to help you determine the kinds of investments you need and lets you track your progress. Remember these essentials for a good investing plan:

Define Your Goal

Name it, date it and estimate how much you'll need. Financial calculators can help you get it right.

Determine Your Investing Profile

Know how much time you have to invest and how you feel about risk. Both help you choose investments that match your risk tolerance. We have tools to help identify your profile.

Commit to Time-Tested Practices

These include diversifying your investments by spreading them across several different investment types; choosing an asset allocation (how much of each kind of investment) that fits you; and sticking to your plan, even when markets seem to be doing backflips. These practices can help manage risks to your investments and give you a better chance of achieving your goals.

3. Invest Like a Robot Vacuum

Vacuum robots clean floors regularly without you lifting a finger. You can have the same experience for your financial goals by setting up regular automatic investments from your bank account. Investing a set amount can keep you on track, and:

  • Stops you guessing about when to invest and helps you focus on long-term goals rather than short-term market volatility.
  • Helps you ignore market swings and the emotions that come with them. Plus, you will buy more shares when prices are low and fewer shares when prices are high. This is known as dollar cost averaging*.
  • Lets you take advantage of time, which can pay off later. This chart shows how regular investments could potentially add up over 30 years.

Automatic Investing Adds Up

Automatic monthly savings add up. The chart illustrates the effects of investing $50, $100 or $200 monthly. Hypothetical results are based on a $2,500 beginning balance, investments made at the beginning of the month and an 6% average annual return. Projections are before taxes. It does not represent the performance of any specific investment product. Source: American Century Investments.

Hypothetical results are based on a $2,500 beginning balance, investments made at the beginning of the month and an 6% average annual return. Projections are before taxes. It does not represent the performance of any specific investment product.

Source: American Century Investments®.

4. Dust Off Your Plan

Review your investment plan periodically to see if it still works for you. I recommend asking yourself these questions at least twice a year:

  • Am I still comfortable with the risk in my portfolio? If you hold your breath during every market report, you may want to rethink your strategy.
  • Am I on track with my goal? Our investment calculators can help you decide.
  • Have life events changed my priorities or my timeframe?
  • Are stocks, bonds and money markets still in the right proportions? If your portfolio target was 60 percent stocks, 30 percent bonds and 10 percent money markets, has market activity now caused it to have too much, or too little, of one kind investment?

5. Restore Your Portfolio by Rebalancing

If you think you need to make a change, you can rebalance, which means to buy investments you have too little of and/or sell investments you have too much of. The idea is to reset your original stock, bond and money market target percentages or set a new course if your goals have changed.

It's good to rebalance, but not all the time. We recommend no more than annually, and you can do it on your own—or with our help. Before you do, consider the fees, penalties or taxes that may come with moving your money.

6. Wash Away the Market Timing Temptation

It's especially tempting to bail on your investments when the markets drop or to jump in when the markets are doing well. The fact of the matter is, it's hard to predict the markets' next moves. Instead, keep a long-term view of your investments and stick with the plan that fits you. You'll be less likely to miss out on the market's best days and more likely to reach your goals by sticking with it.

Come Clean with the Right Financial Partner

I've introduced several ways for you to make a fresh start with your finances, some of which are more complicated than others. You don't have to go it alone. Our professional investment consultants can guide you through planning, reviewing, rebalancing and more. Even better—our services are free!

Michael Schoonmaker
Michael Schoonmaker

Ready to Make a Clean Sweep with Your Finances?

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      Dollar cost averaging does not ensure a profit or protect against a loss in declining markets. This investment strategy involves continuous investment in securities, regardless of fluctuating price levels. An investor should consider his or her financial ability to continue purchases in periods of low or fluctuating price levels. 

      Diversification does not assure a profit nor does it protect against loss of principal.

      Rebalancing allows you to keep your asset allocation in line with your goals. It does not guarantee investment returns and does not eliminate risk.

      The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.