The Life-Changing Magic of Tidying Up Your Finances
From a best-selling book to a Netflix series, Marie Kondo’s simple tidying up philosophy – throw out anything that doesn’t spark joy – has led to a global phenomenon of people engaging in competitive spring cleaning, folding everything into rectangles and talking tearfully to their clothes.
The results are often freeing. Many experience a newfound lightness from no longer being psychologically bogged down with so much stuff they neither want nor need. Decluttering our homes and lives allows us to remove the things that distract us so that we can focus on the ones that truly matter.
What about your financial portfolio? Is everything in it necessary? Does it spark joy? Let’s see how Marie Kondo might deal with that.
A. Gather what you have in one place
Once, when I was visiting an old classmate, he carefully retrieved a large blue file from a cabinet to show me. In it were records of all his investments, assets, property title deeds and so on – basically everything he owned on this earth. He would meticulously update this record whenever he sold or bought an investment. He had told his wife to access this file if he were to pass away, so that she would know what he had and he would not risk portions of his assets being lost to his family forever.
Do you have something like that? For many Singaporeans, the answer is apparently no. A 2016 MyPaper article reported that the government holds some $150 million of unclaimed monies. The Life Insurance Association also reported in 2016 that there were 8,000 unclaimed policies whose beneficiaries could not be contacted.
Marie Kondo’s first step to tidying up a home is to ask the residents to gather all their clothes in one place. From there, they can get a comprehensive view of everything they own.
Likewise, you should have a file or spreadsheet listing all your financial assets. Your significant other and beneficiaries should be aware of where they can find that information, including account numbers and the other information they may need to access or claim the account in the event of your demise.
B. Does what you own spark joy?
Marie Kondo advises people to carefully consider each of their possessions and determine if it sparks joy. If they don’t, they should be thanked for their service and discarded. While this approach certainly has its flaws (not many vacuum cleaners spark joy), it provides a good guideline for assessing what you have and whether it brings value to your life.
Once you have all your financial assets listed in one place, go through them and consider whether they are worth holding on to. What was each investment for? Do you have adequate insurance coverage? Are you still subscribed to services you're no longer using and completely forgot about?
If you have assets domiciled in the United States, you should also be aware that they would be subject to US withholding tax as well as estate and gifts tax when you pass away. For non-residents, the US imposes a 40% estate tax on US assets above a $60,000 exemption threshold. Similarly, if you own assets in the United Kingdom, as a non-domiciled investor you would be subject to a significant inheritance tax if you pass away.
This tax will be shouldered by your beneficiaries, and is something to take into consideration when it comes to distributing your assets in a will. If you have any overseas assets, it is thus important that you speak to your financial adviser to see how these taxes could be mitigated. In complex cases, a relevant tax lawyer could be called upon to help solve the problem.
What about non-performing assets? Some of you may be holding on to penny stocks that have seen better days, or technology funds bought at the height of the dot-com bubble. While these funds may still be active, most investors might have exited them by now, leaving a small fund size (typically below $10 million) that would be subject to very high expense ratios that would make it extra hard for the manager to generate a decent return.
Then there are the complex investments, private equity and hedge funds that you may hold. Most of these are illiquid and complex to unwind, and you may have even forgotten your reason for investing in them. If you find them difficult to liquidate now, what more your spouse or other beneficiaries in future?
What about individual stocks and your more esoteric investments? It would be a waste if something happened to you and your beneficiaries had to liquidate at a loss, not knowing what else they should do. If these assets are managed by your financial adviser, make sure they are familiar with both the adviser and the company so they would know who to contact when you are not around.
Consider which investments you should say farewell to, and clear them out of your portfolio. If you really need or want to keep some of the more complex investments, make sure you leave a clear set of instructions on who to contact and what to do in the event of your death.
C. Organise what remains
It is always good to curate and streamline your assets and investments. The more liquid they are, the better. They will be much easier for you to manage and understand as part of your overall financial status, making financial planning a lot less complicated.
It will be good for you to have a conversation with your financial adviser on how best to simplify your investments without compromising their returns or your financial objectives.
Having everything organised will likewise make them easier for your beneficiaries to access one day, ensuring that you can provide for them with the assurance that your hard-earned money won’t just end up with the government.
Ultimately, tidying up your finances will clear out some of the clutter, clarify your financial plan and help you know what you have and where to find it. Hopefully, it will also get to spark some joy in the process!
