If you’re like me, you’ve been dreaming about spring for a while. You’ve been impatiently waiting to put away the snow shovel and start your spring cleaning. Speaking of spring cleaning, this would be a great time to get your financial house in order, too. Take a look at the areas of your financial life that have been neglected. Perhaps you have had a major life change like a marriage, new baby, or kids that have moved out of the house. Follow these five tips for “spring cleaning” your finances.
1. Prepare – Scan over last year’s tax returns to remind yourself of what you need to keep and make a list of these items to use as you’re organizing. Know ahead of time what documents you should keep and for how long. Albert N. Essilfie, MBA, who is CEO of CA Solutions USA accounting and tax practice in Pennsauken, NJ, offers the following basic guidelines for retaining personal records.
- Tax Returns – Retain them for seven years. When you file the new return, shred the newly expired one. The IRS has three years to audit you from the date you file your taxes, and it is up to you to have all of the backup information that went into the preparation of your returns.
- Bank Statements - The only reason to keep bank statements is if you are thinking about applying for a mortgage. In that case, you would need to show a three-month history. Otherwise, the bank has all of your records if a need arises.
- Credit Card Statements – It is recommended that you keep statements from the past three months on hand.
- Medical Insurance – This includes your premium statements, doctor bills, prescriptions, hospital bills, etc. In general, keep these five years from the date of the service rendered.
- Pay Stubs – Many people save these for long periods of time, but this is not necessary. Since they contain everything an identity thief needs to open an account, proper storage and disposal is important. If you are planning to apply for a new mortgage, however, your lender will usually require a few months of pay stubs.
- Home Repairs – Keep these documents for about ten years in case you need to prove something with regard to guarantees of workmanship.
2. Organize – Gather your piles of pay stubs, receipts, statements, bills and other financial documents. Determine what needs to be kept and what you need to shred. Purchase a storage container such as a filing cabinet or portable filing tote and create files for household expenses, credit card debt, insurance, retirement accounts, bank statements and your will.
3. Simplify – As you are gathering, shredding and filing, consider enrolling to have your bills and statements delivered online. Not only will this save trees and keep your piles of financial papers from mounting, you will also be able to keep records organized and readily accessible when needed. Also, with online billing, you can receive email alerts to remind you when bills are ready to be viewed and paid.
4. Compare – Now that your bills and statements are organized, review each category for potential savings. Compare interest rates, annual fees and billing cycles. Are you paying for any features you could do without? Can you use new information to leverage for a lower interest rate on your credit cards?
5. Save – Albert also suggests looking for savings where possible. You should do an annual review of your bills to see where you overspent during the year. You need to manage your life almost like a business. Business owners look for savings, regularly comparing insurance rates, etc., to make sure that they are paying a competitive rate. Term life, car and some homeowner insurance policies have gone down in price over the past few years. If you haven’t shopped around for a new policy recently, you may find that a bit of research can save you hundreds of dollars.
This process isn’t just about shredding old paperwork. It’s about getting organized so that it is easier to locate important financial documents. Also, spring cleaning your finances now will reduce your time to get this year’s tax returns completed. Lastly, keeping important financial documents secure and in order will aid in establishing and sticking to financial goals like making (and keeping) a budget.