organizing your finances

Organizing Your Finances

As the weather warms, it is hard not to think about all that spring can bring. It is also a popular time for “spring cleaning” as you open your windows and doors to refresh your home after a long winter. In this season of renewal, you may also look to spruce up your personal habits as well, including organizing your finances. 

Take Inventory 

Too many accounts can dilute the effectiveness of your money. Knowing what you have is the first step to organizing your finances. Make a list of all of your financial accounts. In addition to checking accounts, the list should include savings, credit cards, retirement and non-retirement accounts, outstanding loans, and any other large assets, including real estate.  

Organize and Consolidate 

Now that you have a comprehensive list of your financial assets, ask yourself the following for each line item: 

  • What is the purpose of this account? Is that purpose still valid? 
  • Can this account be consolidated with another account? Would that help or inhibit the purpose of the account? 
  • Who is this money flowing to if you are not here?  
  • What are you no longer using? 

These questions can help you determine where to consolidate. Some of the benefits of consolidating investment accounts, bank accounts, and liability accounts include: 

  •  Simplicity of management 
  •  Less payments
  • Fewer tax documents (an underrated benefit)
  •  May result in lower costs
  •  Less exposure to security fraud and identity theft

Keep in mind the importance of emergency funds and a back-up credit card. 

Next, turn your attention to cash flow. Make a list of the monies coming in and the monies going out. Make sure you have a handle on how much it costs to run your household and maintain your lifestyle, as well as a handle on how much you are saving. Pay special attention to subscriptions and automatic payments. If you are automatically paying for goods or services that you are no longer utilizing, make sure to cancel those out.   

Purging Files 

Another priority for organizing your finances should be to clean up your document files. Things you can get rid of include previous versions of Estate documents, old insurance policies, and expired contracts.  

According to the IRS, individuals should keep tax records for three years from the date filed or two years from the date the tax was paid, whichever is later. This is if the claim filed was for credit or refund. If you file a loss claim from worthless securities or bad debt deduction, it is recommended that tax records be kept for seven years. 

Everyday bills should be kept for one year and any tax-related invoices should be kept for three years. Records for satisfaction of loans should be kept for seven years and any home improvement records should be preserved for the duration of home ownership to substantiate basis. These are some general guidelines. You may have circumstances or preferences that warrant longer holding periods.  

It is important that anything you choose to clean out be shredded if it contains personal and identifiable information. 

Create a System 

Now it is time to devise a plan for how you can maintain order after organizing your finances. It may be a new filing system or tracking system that will help keep your finances in order. You may choose to look into mobile banking which could help you keep an eye on your bank accounts at a moment’s notice. There are also some useful tracking apps if you are looking to be more conscious about your spending.  

Creating a system for your finances is a great way to keep your finger on the pulse of your financial health and stability. Engaging with a Certified Financial Planner™ can also help bring clarity to your finances and help you develop goals and identify opportunities as you age, and your net worth increases. If you are curious as to what it is like to work with a financial advisor, I’d be happy to discuss. Contact me at [email protected] or 610.709.5072.