After last year’s market meltdown, we’ve all redefined our perception of and tolerance for risk when it comes to money. As this is a financial column, the easy topic to cover would be risk as it relates to investing in the stock market. But that seems to have been adequately covered by other experts, so let’s address the role that money has in our decision-making process when it comes to taking risks in life.
Personally, I recently took a huge risk by quitting my job and starting my own financial coaching business. Don’t think that money wasn’t a primary consideration when weighing this decision! By implementing a tried-and-true decision-making process and despite the risk to my financial situation, I took the leap. All things considered, the risk was worth it to me.
Life presents us all with crossroads at various points and having a process to decide which path to take can make those crossroads less intimidating and more of an adventure. Try the following soul-searching steps the next time you are faced with a risky decision, and see if it doesn’t help you live a deeper, more fulfilling life.
First, take time to review wisdom from others who have taken risks. This includes books, articles, speeches and personal conversations. My favorite inspirations include George Clooney, who said, “My father gave me the best advice of my life. He said, ‘Whatever you do, don’t wake up at 65 years old and think about what you should have done with your life.’”
Another piece of advice comes from a birthday card I sent my younger brother that read, “20 years from now you will be more disappointed by the things you didn’t do than by the ones you did. So throw off the bowlines. Sail away from the safe harbor. Catch the trade winds in your sails. Explore. Dream. DISCOVER.”
Next consider the following questions:
1. What’s the worst that could happen?
2. Does this risk have the possibility to render me homeless?
3. What is my greatest fear?
4. How might my life look in 10 years if I do this?
5. If I don’t do it?
More often than not, we already know the final answer in our hearts. Usually we just have to face our fear and work out the details. Too often we use money as an excuse or a crutch to keep us from taking a risk to fulfill a dream. Fiscal responsibility remains important but so does remembering that money is just one tool in life.
Perhaps you’re considering taking some type of risk that could affect your financial situation but can’t quite stomach the chance that you may end up broke or owing more than you can pay. It could be buying that first home, going back to school to pursue your passion, or having your teeth fixed so that you can smile with confidence. Or maybe you’ve been struggling with the idea of ending an unhealthy relationship that would mean risking financial security. These are all situations I’ve faced in my life — some I’ve pursued, others I’ve forgone.
Money plays a big role in all of those situations, whether you don’t have any to risk or just aren’t sure that you want to risk the money you already have. Only you truly know whether it is worth it.
Of course there is always the chance that you take your risk and fail, but I prefer to look at failure, not as the end of the journey, but as the lesson learned to start the next trip. Life is too short to stand on the sidelines just because we don’t want to risk losing money!
Spring Cleaning Your Finances
Monday, March 15th, 2010Cleaning up your finances doesn’t have to be a big chore; you can do it while catching up on your DVR one evening. Not only will you put a better system into place to reduce clutter, you will also re-connect with your money and hopefully begin taking control of it.
Start by getting organized. Gather all your documents in front of you — grab your files, empty that basket, pull out your bills and round up your receipts. Next sort them into the following piles:
Receipts, paycheck stubs, bank and credit card statements and monthly bills
Investment statements (401k, brokerage, IRA, etc.)
Tax returns and the documents used to prepare them
Insurance policies, ownership deeds, etc.
Warranties, user manuals and their corresponding receipts
Identification documents
Next, place your identification documents (also called “forever docs”) in a fire-proof safe in your home. This includes birth certificates, passports, marriage license, divorce decree, will, trust, power of attorney, death certificates and other original documents. For all of the other piles, create a folder for each and add new papers as you receive them.
Some folders will then have folders within them. For example, in your folder for monthly bills, you might have a separate folder for electric, cable, credit card statements and so on. If you can, keep these files in a fire- and water-resistant safe. If that is not possible, at least keep them together in a drawer or on a shelf.
Then let the de-cluttering begin. Read on for guidelines on how long to keep what type of documents.
RECEIPTS, PAY STUBS AND MONTHLY ONGOING BILLS
Utility bills: Keep for one year, unless you claim a home office deduction, in which case they become tax documents.
Pay stubs: Keep for one year until you receive your W-2. As long as your last paycheck matches your W-2, you can toss them.
Bank and credit card statements: Keep for two years, as you may need them when applying for a mortgage or other loan.
INVESTMENT STATEMENTS
Keep your monthly or quarterly statements until you receive your annual. If you make any trades, keep the trade confirmation for a purchase as long as you hold the asset and for a sale, for at least three years. If you make any non-deductible contributions to your traditional IRA or convert to a Roth IRA, save the IRS Form 8606 until you withdraw during retirement as proof that you’ve already paid the taxes.
TAX RETURNS AND SUPPORTING DOCS
Keep everything for at least three years. For questions on IRS recordkeeping guidelines, check out IRS Publication 552.
INSURANCE POLICIES, OWNERSHIP DEEDS, ETC.
Keep all as long as the policy is in effect or as long as you own your home or car. Consider placing this file in your fireproof safe as well.
WARRANTIES AND USER MANUALS
Save all active warranties. Toss any that have expired or for items you no longer own. Try to weed this file out on an annual basis. I like to staple the receipt showing proof of purchase to the warranty in case I need it. If you are comfortable using the Web, I recommend tossing user manuals. Manufacturers now have downloadable versions on their Web sites, so you can rid yourself of this clutter.
As far as ATM receipts and other receipts for purchases, you can toss these after you’ve checked them against your bank statement. I keep receipts for clothing until I’ve worn and washed the item and for household items until it has been used at least once, unless it has a warranty.
As you are de-cluttering and tossing unneeded documents, be sure you shred them before putting them in your recycle bin. Even if it is a statement for an account that is closed, you don’t want to tempt identity thieves by offering your name, address and an account number on one page.
Finally, once you have your important papers more organized and up-to-date, make a note to revisit your files on an annual basis to weed out those no longer needed and collect and add any new documents collected.
A version of this post was published in the Cincy Chic column “Cents & Sensibility” on March 15, 2010.
Tags: Cincy Chic, finances, financial education, financial planning, financial security, Women and money
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