Mo Vidwans
Albert Einstein once said that “out of clutter find simplicity.” Perhaps that is the reason he could find seemingly simple principles out of a very complex universe that he was studying. Not bad considering that once he was a clerk at the patent office and his desk and office were thought to be most cluttered.
Our financial lives also get very complicated at times and then we get lost into the financial maze and don’t quite know what to do. I have observed a few couples and families sabotage their own finances and financial success, in a way, by making things much more complicated than they need to be or doing things that are beyond their means.
Clearly for most of us there is much to do. Granted some of us are very organized and keep things in order but some of us are not; and I am not sure that it is the high degree of organization that brings success or it is keeping things simple. I believe it might be the latter.
There are things we can do now which will help us in our daily financial life today and which will also help our administrators/trustees after we are gone. The most imminent thing to do is to bring all the financial information and documents together in one place so that you or your administrator will not have any difficulty understanding what is involved. My father had this impression that opening different accounts in different banks is the way to keep your money safe. Perhaps, but then imagine our surprise when we got a call from a bank manager many years after his passing asking us what should be done with the bank account he had opened. Opening so many unnecessary accounts in different banks was neither more safe nor keeping it simple.
With all the information in one place you will automatically begin to comprehend the redundancy of accounts, or the fact that there is not enough diversification of assets or that some documents are missing, not to mention a few of the potential problems. Gathering information together will also include information about your pension, 401Ks, IRAs, credit cards, life insurance, annuities, house deeds, wills, trusts, bank accounts, long-term investments and many such items. When it is all together you will also begin to see the holes in your planning like things that are missing or wrongly done that need to be corrected.
One couple I worked with was so surprised to find that they did not have any beneficiaries mentioned on any of the investment accounts they had. Even the smallest saving account needs to have a beneficiary mentioned. Most people think that since everything they have is in a joint account (joint accounts are usually not even a good idea even between husband/wife) they are covered but usually that is not so. Imagine the surprise one husband had when he found out that he still had his divorced wife’s name as a beneficiary on his life insurance policy and on many other investment documents. It was probably the last name he wanted to have on such documents.
When all your financial information is together, in a big folder or a binder, and you start looking at it all-together, you may begin to see holes or gaps, for example that you don’t really have much diversification in your investments. One fellow was investing in mutual funds fairly sporadically mainly on whims as and when his friends suggested something or he saw success with these mutual funds somewhere else. What had happened in this process was that he really did not give much thought to what he was doing. Not only he was not properly diversified but also he really had not thought of what his long-term goals were and towards which he should be investing. Not just bringing it all-together but also decluttering and simplifying will give you the proper long-term focus that you need to do well with your investments.
There are other “must” things that also need to happen, like having a proper “Will.” Over 50% of the population in the United States does not have a Will. Without a Will the state takes over and the job of an administrator becomes three times as complicated. It does help to imagine what actions your trustee will have to go through if you don’t simplify your financial life now. Titling your assets properly, having beneficiaries on all assets (to avoid probate) and reviewing your goals and investments will be some of the other must things that should be done.
For seniors, taking proper care of the surviving spouse will be a top priority. If you have all your financial information (including account numbers, what, where and whom to contact) in one place and with clear instructions in your will or otherwise as to what should happen with your assets when you are gone, that will be the best last “love note” you will ever leave for your spouse. It will be greatly appreciated not only for the personal content in it but also for all the homework you have done for them.
I should also mention about what needs to happen in today’s “digital” world. All of us have digital accounts, with IDs and passwords, and many of us do transactions electronically. Of course we love to have emails and texts going back and forth, are active on Facebook, Twitter, Whatsapp and many such wonderful tools at our disposal. If proper action is not taken now to make sure that your digital world will not completely freeze after someone passes on, it could create a heap of issues. I have read about a couple who, in the middle of a divorce, were not concerned much about the custody of the dog and the child but were arguing over how to divide up the list of their friends on Facebook. Perhaps that is not where your worries lay, but decluttering and simplifying your financial life will certainly put your mind (and your administrator’s) at ease. Do it now.
