The Planner's Perspective: Disorganization = Chaos
By Paul Morrone CFP®, CPA/PFS, MSA
You all remember the kid at school who was always super organized. They had color coded folders, a meticulously maintained desk and alphabetically categorized flash cards in preparation for each exam. Maybe you envied them for their dedication, or maybe they drove you crazy, but they probably never lost their homework, missed a deadline or were late to class. While these characteristics didn’t necessarily guarantee that they graduated a valedictorian, these organization skills will benefit them down the road as their life becomes increasingly complex. In fact, I’d be willing to make the argument that disorganization is one of the biggest threats to an individual’s long-term financial independence.
It starts with your first job and making small decisions at the beginning of your working career. This includes managing your employee benefits, retirement plans, income taxes and basic types of insurance policies. As the proverbial ball of wax continues to grow, you begin to accumulate multiple bank or investment accounts, real estate and other assets that create additional complexities in your financial life. Maybe you marry your significant who brings their own set of financial baggage to the table. As the number of variables increase, having a mechanism and system to track all the moving parts becomes more involved. Even more important than having a system is maintaining it, which requires constant attention to detail a dedication of time and resources. You wouldn’t drive your car 100,000 miles without changing the oil, so why would you go 100 days without reviewing your finances?
A mismanaged financial household can affect much more than your retirement plan, and can even jeopardize your ability to obtain credit, fund future financial goals or even compromise the integrity of your estate plan. Missed debt service payments or racking up huge credit card balances can ruin your credit score. Over-spending or not saving enough may force you to work longer than you originally wanted. And something as simple as an outdated beneficiary designation or, worse, a lapsed life insurance policy can have a lasting effect on loved ones for generations to come.
We recommend establishing a financial plan and engaging in annual reviews over all areas of your financial life to mitigate the changes that something falls through the cracks. These reviews should be used to discuss everything from your current income tax liability, asset allocation and employee benefits to your overall risk management plan, estate plan and retirement plan. If you’re engaged with a professional planner who is not addressing everything in a comprehensive manner, it may be time to start looking for one who will as part of your next annual review.