The Planner's Perspective: Inventory Isn't Just For Retail

Paul Morrone |

By Paul Morrone CFP®, CPA/PFS, MSA

A major focus in the retail industry is inventory control. Companies make large capital investments to have an inventory control system in place and maintain that system on an ongoing basis. These systems can be highly sophisticated and track many variables related to inventory to provide useful data to optimize what inventory is on hand given anticipated sales to make sure there is always an appropriate quantity available to meet demands. Most importantly, a retailer can instantly see what their inventory is, at any time, with the push of a button.

Much different than retailers, most individuals do not have or need a complicated system to monitor their own financial inventory. Individuals are not selling widgets and the many variables in my retail example are irrelevant. What is very relevant is do you have “a system” to track your financial inventory? Now, let’s clarify what financial inventory means. Think of your personal balance sheet which would include all financial assets that you own and what liabilities you have in relation to those assets to then determine your net worth. Let’s dig deeper…

Financial assets would start with your most liquid assets such as cash in the bank including savings, checking, money markets and CD’s. To that you would add your investments that would include stocks, bonds, mutual funds and any other investments. The next layer would include retirement assets including IRA’s, annuities and retirement plan accounts held at your current and/or former employers. Don’t forget any cash surrender value in life insurance policies. These assets can change in value daily because of activity within the accounts as well as market performance related to the investments.

The financial inventory list continues as we begin to cross to those assets that are not as liquid and more static in value such as your home, commercial real estate, investment real estate, vacation property, business holdings, vehicles and equipment, recreational items such as boats and motorcycles, furnishings, jewelry and collectible items. Estimated values may be needed by reviewing comparable sales, valuations and best guesses in some cases.

Don’t forget those liabilities such as mortgages, car loans, student loans, credit card balances and other outstanding liabilities. These balances may not change daily like the investments, but they change regularly as payments are made.

You do not need a retail inventory system to monitor this information, but you should have the ability to at least capture this data. Technology can be extremely efficient with this exercise but at a minimum make a manual list of all assets and liabilities and update that list periodically and make sure someone else is aware of this list and its location (computer file name, file draw location, safe deposit box, etc.). Then if something were to happen to you, this list can be very useful to your survivors and could help avoid the preverbal “Easter Egg Hunt”.

Do you have a financial inventory?