Three Tips for Avoiding Financial Complacency

When your financial situation hits a big bump, most people find the focus and motivation to get it back on track. But how do you gear up when all is well?

Unexpected financial hits have a way of getting us to pay attention. Whether it’s job loss, serious illness in the family or a sudden need for a new car, we gear up for the fight, do our homework and keep our focus.

Once the trouble passes, we tend to settle into the new “normal”. There is nothing wrong with adapting and finding an opportunity to relax, but if it goes on too long we can turn complacent. For better or worse, most of the time our financial fortunes don’t change overnight. The slow pace of change makes paying regular attention to our finances a big challenge.

How can you keep yourself from falling into a dangerously comfortable routine? I recommend scheduling time to do these three simple checks at least once every year. They won’t take you more than 10-15 minutes each, and your attention will be rewarded in the long run.

Check what your 401k is invested in.

Setting up your 401k can be a pain. There are lengthy forms, lots of legalese, and fund names that blur in your eyes before you make it half way down the page. It is not surprising that most of us tend to make our investment selections when we start a new job, close that booklet and never look at it again.

And that is how we go off-course. Set aside some time every year to review your choices. Sure, retirement savings and investing is meant to be approached with a long-term view, and few advisors would recommend that you try to manage your account by buying and selling funds frequently. That being said, your risk preferences shift over time, and better investment options become available. Make sure that your original choices still make sense, and check the expense ratios on your selected mutual funds, as high expenses can cut into your investment balance growth over the years.

Keep in mind that your employer’s old 401k plan may not be your only option. Technology is changing the way we do things, and some companies are offering their employees access to automated investing platforms like Captain401 and Vestwell. If your employer has not jumped on that bandwagon yet, there are solutions like Blooom (yes, that’s three “O”s) that may provide a better selection of funds to you directly.

Check your retirement account contributions.

Your decision to choose your contribution amount was influenced by your finances and life situation at the time you enrolled in the 401k. Perhaps you had just bought a home, had a baby on the way, or knew that your aging parents were going to need help with moving expenses during the year. The situation has changed several times over, but is your contribution amount still stuck in the past? Make the time to check your contribution amount and adjust it to reflect what’s true right now.

Monitor your credit report.

I know that reviewing another report does not sound like a fun thing to do on a weekend. And yet, this particular report can give you the tools to thwart unauthorized spending, ensure that you have access to credit in case of a financial emergency, and give you the benefit of a big-picture view of your loans and lines of credit. Order a free credit report – you are entitled to one each year via www.AnnualCreditReport.com. If you use this resource, the reports are completely free (you don’t even need to enter your credit card information) and take under 5 minutes to request.

In closing, avoiding financial complacency does not take as much time as you fear. Find a way to create a reminder to look at these checkpoints annually, and you will build a financial foundation that grows with you.

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