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Tips for Financial Organization

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Having an organized system of handling your finances will help keep your life simpler and give you a sense of control.  Generally, this comes down to three issues – handling your mail, paying your bills and keeping the right type of records.

Handling your financial mail – both physical mail and electronic mail.

  • When you receive mail, at least look at it immediately, especially bills.
  • If you see something on a bill, such as a credit card statement, that looks unusual, follow up immediately.
  • Then sort your mail into four general categories – bills that need to be paid, reading material, records that need to be kept and everything else that can be tossed.
  • For electronic mail that relates to your finances, create folders that match.

Paying your bills

The key here is to make sure everything gets paid on a timely basis to eliminate any fees or charges for late payment.

Most people pay their bills in one of two ways.

  • You can pay the bills immediately when they arrive.
  • Or, choose a couple of dates, such as the 15th and 30th of the month and pay them on those dates.

Either way, you will be timely.

Tax FormsKeeping your records

  • Over time, you will find that there is quite a bit of paper that accumulates related to your finances. There will be tax related papers, monthly statements and bill, (such as utility bills, credit card statements, and bank statements), investment records, insurance policies and other important “permanent” records that you feel that you should keep. Here are some guidelines to consider.

Tax records deserve special attention.

The general rule is that the IRS has three years from the due date of your tax return to start an audit.  This is often referred to as the three-year statute of limitations.

  • Therefore, you need to keep records that support anything in your tax return for those three years.
  • This includes tax forms you may receive like W-2’s, 1099 forms and receipts for expenses you claim as itemized deductions.
  • Security transactions deserve special attention. When you sell stock, you report both the sales proceeds and cost basis on your tax return. That means you need to be able to document what you paid for stock, regardless of how long you may have owned it. You can keep trade confirmations or you may find it easier to keep the monthly statements you receive from your brokerage firm.       Some firms include summary information as part of their year-end reporting that can make this easier.
  • Once the three-year statute of limitation passes for a year’s return, you can dispose of the information that supported the information on that return. But remember the rule for securities.

While there is no need to keep copies of your actual tax returns beyond that three-year period, as a practical matter, most people end up keeping copies of their tax returns forever.

Monthly statements and bills can accumulate

Each month you will receive bills, statements and other financial information that you will need to handle.  There is a great temptation to keep everything, but that is really not needed.

  • Recurring monthly bills – Once you have paid your insurance, rent, mortgage and utility bills, there is no need to keep them. You will have a cancelled check to document payment and unless there is something special about the bill, you can dispose of them.
  • Credit card statements – Even though there is no requirement to keep these statements, you may want to save them for some period (a year) in case there is a dispute, you want to return an item or if you want to be able to analyze your spending. There are some papers that deserve special attention. Documents to keep forever include: wills, powers of attorney, birth certificates, marriage documents, divorce or child care orders, trust documents, business agreements, military records and other such permanent records.  There are other documents that should be kept as long as they may be needed:

financial organizationStorage of important papers or permanent records

  • Bank statements and cancelled checks – Some people keep every cancelled check and others toss most of them. Certainly you should keep cancelled checks that support any tax deductions and any that you think may come in handy. Otherwise, cancelled checks can take up a lot of space. Bank statements are a bit different. You may want to keep them for some period (three years or so) so you can document your payments for important items. Together with your checkbook register, you would be able to identify when and how much you paid for almost anything.
  • Insurance policies – as long as they are in effect or until a claim could no longer be filed.
  • Loan documents – until they are paid off.
  • Deeds and real estate papers – as long as you own the property plus any period for tax purposes.
  • Employee benefits information – as long as you are employed or until the benefit no longer exists.
  • Investment records – as long as you own the investment plus the three year tax reporting period. Most people end up using filing folders in a drawer to keep their financial records. If you do not have a drawer to use, buy a plastic storage bin. Buy a box of folders and label them for each type of expense you normally have and for other types of records you plan to keep – rent, utilities, auto, insurance, home ownership, family, employment, bank or credit union statements, retirement, medical and any other categories you consider useful. File folders are inexpensive so you may want to buy a box of them and create new folders when you like. Once you have the files set up, you just put your receipts, statements and other information into them. There is a good chance that some of the folders will get quite bulky over time. When that happens, you can start a new one or better yet, toss out what you do not need. For information you receive in an electronic format, just create folders on your computer and be sure to back them up on a regular basis.

Creating a filing system

  • Receipts and warranty information on major purchases – as long as you own the item and could make a claim.
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