You’ve just filed your taxes and now it’s spring cleaning time – cleaning up dirt and clutter in your homes and workspace to allow for a chore-free summer. Why not also take this opportunity to “clean up” your finances? With a little annual cleanup and our three ideas, you can keep your current financial situation well organized, streamlined, and current.
Clean up document clutter
We are all human and sometimes we accumulate stacks of important documents and statements. Now is the time to review your financial documents and consider which ones to keep and which ones to discard. Keep recurring documents, such as bank and investment statements, property and casualty insurance renewals, or social security and retirement statements, for one year. You only need to keep your household bills and credit card statements until you have a record that the bill was paid (unless you need these statements as proof of tax filing or proof of purchase). Shred all obsolete and unnecessary statements.
Try organizing your saved documents in a folder with the most recent date at the top. This way, if you are looking for a specific document, you won’t have to go through a year’s backup. Maybe you prefer to store everything digitally. If so, consider naming the folders starting with the year, followed by the two-digit month, and ending with the name of the institution or document. This keeps the files arranged in a simple chronological order. Remember, all electronic files must be backed up regularly, whether stored locally or in the cloud. These days, there are many who will sync their devices and safely back up their storage.
When you reduce and keep only what is necessary, for tax and financial record tracking purposes, you will have less clutter and a better understanding of what you have in your possession.
Consolidate retirement accounts
How many retirement accounts have you accumulated? Throughout your career, you may have changed employers and acquired multiple retirement accounts. You’re not alone – many people have 401 (k), IRAs, and other retirement accounts of convenience. Talk about financial mess! Now is a good time to consolidate them. IRAs, SEP IRAs and SIMPLE IRAs can be consolidated into a single IRA. (Roth IRAs can only be combined with other Roth IRAs.) Old 401 (k) accounts can also be transferred to your IRA account. When distributing an old 401 (k) in your IRA, be sure to review the investment options and expenses in the 401 (k) compared to what is available in your IRA. Combining multiple accounts can save you fees and will certainly save you paperwork. Most importantly, you and your advisor can more easily and strategically invest your retirement account for today and tomorrow. When it’s time to make withdrawals, the calculations and taxes will also be much easier.
Update your critical information
Finally, as you start to clear out your financial clutter, you may have multiple accounts and people who have changed since you last organized. That’s why this is a great time to record all your critical information in one central location. We like to call this your critical records organizer. If you already have your information in an organizer, your information may be out of date or the professionals may have changed. Use this spring cleaning time to review information and make updates. If you have never organized your important information, you should include all of your current account numbers, login information, and business contacts. You may want to keep this information on paper or choose a mobile app (like 1Password) or a cloud-based document service (like Dropbox). Creating a central location for this information is not only useful to you each year, it could become critical to your family. You may have account information and professionals in your life that you interact with, but the rest of your family may not know how to communicate. Once you update and organize your critical information, remember to let the important people in your family know where they can find this information for the future.
Spring cleaning your finances doesn’t have to be a tiring process. By keeping important statements in one place, throwing out recurring documents, and shredding unnecessary or outdated personal paperwork, you can clear document clutter in your life. Consolidating multiple accounts that have been maintained over time will give you new confidence and control over your savings, and updating your information in one central location will keep you protected for the future.