You may have heard the acronym K.I.S.S. which stands for Keep It Super Simple (or is it Keep It Simple Stupid?). Simplifying, decluttering, downsizing, uncomplicating (is that a word!?!) are all referring to great advice, in my opinion, to clarify the situation and make life less complicated, less overwhelming and often easier on yourself.
And that goes for whatever subject you are thinking about… simplifying paperwork, your household, a recipe file, a large project, or your finances.
Marie Kondo’s KonMari Method, for example, has really taken off in popularity as a method to declutter rooms, closets, kitchen areas, etc. There is something rewarding about “tidying up”! And that rewarding aspect rings true when it comes to your finances for you now as well as down the road when someone else has to deal with them.
So, just like anything, where do you start? I am a big proponent of starting with a list and in this case, that means an asset list, a net worth statement, a personal financial statement, whatever you want to call it.
A list of what you own, and what you owe helps you see clearly what you have in place. Think of it as your financial inventory. In fact, I think it is so important that I created a downloadable Net Worth Summaryfor people to use (AND I offer it free in my monthly free workshop).
Just the process of compiling a list of accounts, real property, policies, etc. can be eye-opening. Take bank accounts for example. You may find that you have more accounts than you realize when you list them all in one place. Maybe you opened an account at a Credit Union when they were running a special. Or you started a Christmas account when those were in vogue.
Maybe you moved a couple of times along life’s journey and you still have some old accounts that were necessary for local or employment purposes. Or you have several small balance accounts that could be closed or consolidated.
Consolidating accounts, whether they are at the bank, old employer plans, or old IRAs that you started at various institutions is a best practice that we often don’t hassle with. Yet when it comes time to withdraw money for income to cover expenses, income in retirement, or to take Required Minimum Distributions from retirement accounts, having a zillion accounts can be a nightmare! And if you are in a blended family relationship, that usually doubles the “mess.”
When consolidating accounts, you need to pay special attention to the type of account and be sure you are transferring a like account to a like account (IRA to IRA, taxable account to taxable account, etc.). In-kind transfers vs liquidating holdings in a taxable account will prevent a tax impact.
Rollovers vs transfers of IRAs have different rules. It is a paperwork process and needs to be monitored. So the bottom line is that working with someone experienced with the consolidation process is imperative.
One other common issue I still see quite often is paper stock certificates. If you or your heirs ever want to sell them, they must be in an account in order to be sold. You could physically send them in to a Transfer Agent, like Computershare, where they would then be held in “book entry” form (electronic record of your shares instead of paper copies).
Or you could send them into a brokerage account that you already have or open at a custodian like E-trade, Schwab, etc. Call first for special shipping instructions for both situations. Either way, once in the account, you would be able to sell them when you want. Taking care of that well in advance of ever wanting to sell the shares is a wise idea.
Aside from organizing your financial files so everything is labeled, findable, and reflects all of your assets/liabilities (electronically or in paper file form), consolidating is the main K.I.S.S. step to decluttering your finances. Think of each account, contract, policy as a set of paperwork that someone, someday, will need to submit in order to access or disperse the holdings.
Would you rather deal with 3 IRAs, 4 taxable accounts, 2 old employer plans, and 6 bank accounts at 3 banks OR 1 IRA, 1 taxable account, and 3 accounts at 1 bank? Your answer is likely the same whether you are alive or your heirs are the ones dealing with things.
K.I.S.S. is a short but powerful chapter in my checklist book, but it can mean the difference between a headache and smooth sailing!
Have you started your consolidation journey? What motivated you to take action? Have you seen family situations where decluttering finances would have been helpful?