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What is in your wardrobe and financial closet?

Updated: Feb 14, 2022

Professional organizers estimate we only wear 20% of our clothes. Why do we underutilize our clothing assets? I would suggest partly due to poor visibility. A psychologist would insist our wardrobes are a window into our inner lives. Who could argue that what we wear and how we organize it doesn’t speak volumes about other areas of our lives? Our financial arrangements can be equally revealing.

My wife and I differ significantly in our closet behaviors. She has a very organized closet by season, color and primary purpose. Her shoes are in boxes, sweaters neatly arranged and delicate fabrics are protected. Her multiple thrift store accounts prove that she can easily say goodbye to items that no longer serve her needs.

My closet is a therapist’s minefield of legacy items, leftover from a prior career, with dress pants and suits that don’t fit anymore. I struggle with purging valuable items that are a bit too tight (due to the dryer) in hopes that I may find a special occasion or a smaller waistline to wear them again. At 57 years old, it’s a hard dream to let go. Some items I haven’t worn for years but their sentimental value makes it difficult to part ways.

According to Psychology Today, organizing and purging our closets of clutter will reduce our stress, saving us time and energy when deciding what to wear. I recently spoke to a professional wardrobe consultant who clearly stated, “maybes don’t stay.” Consolidation and simplification are challenging but powerful endeavors. The fewer items we have in our lives, the more we care about and appreciate them. Excess quickly leads to neglect.

What do our financial closets look like? Do we have any “maybes” hidden in the corner? Old checking or investment accounts, too small to matter, that often become neglected or mismanaged? What about that small investment account with an old brokerage firm where you are a meaningless client and rarely, if ever, contacted? An IRA account you started but stopped funding? That extra credit card account with a small but growing balance.

As I began the purge of my wardrobe, I also cast a fresh eye to a few of my financial accounts needing consolidation and elimination. Yes, I had some there too. The problem with a cluttered financial closet is that we don’t see the mess daily; they are invisible until tax time.

Diversification is a generally accepted concept in the investment world of not putting all your eggs in one basket. A lessor known term is “di-worsification” or overly diversified. It simply means after 20-30 different assets we lose the benefits of diversification. My closet was grossly di-worsified!

A well-organized financial closet (like a wardrobe) has essential items, retirement accounts, brokerage accounts, educational savings accounts, and checking accounts, each serving a specific purpose. Prioritize maximizing your retirement account contributions each year as the tax-free compounding power is the eighth wonder of the world! If you have young children, take full advantage of the 529 educational plans available and get an early start, so time becomes your advantage.

If we have too many accounts, it can be hard to comprehend their composition and, most importantly, the ability to aggregate our total holdings to see a clear picture of our overall affairs.

In my work with high-net-worth clients, I help them simplify their multiple investment accounts into a combined holdings statement that allows them to make well-informed allocation decisions summarized on a single page. There are several worthy software programs that can help aggregate your multiple accounts into a combined view.

The psychology of storage and Americans’ difficulty in saying goodbye to their “maybe’s” has led to several important investment opportunities of our lifetime. Self-storage, cloud storage, RV, and boat storage. I’m sure you have seen the proliferation of storage units in our valley and are aware of how occupied and pricey they can be. Storage investments are recession-proof hard assets with reliable cash flows.

In today’s world, we only have so much bandwidth and capacity. It’s easy to ignore minor things that seem insignificant to our larger affairs. Let’s turn the tide, purge our unused items, and say goodbye to our maybe’s.

Last week, I began monetizing my closet “maybes” through our incredible network of thrift stores in the valley. I plan on reinvesting my proceeds in dividend-paying public securities. Now my unused closet assets will be paying me versus taking up space and drawing a cynical eye from my loving wife.

Next up, the garage

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