As the temperature rises and the signs of spring become more prominent, it seems like everyone is coming down with a case of spring fever. Amidst the excitement and thoughts of renewal, as a financial planner, I can't help but think about ways to enact some much-needed financial spring cleaning.
Here are my three top tips to help you achieve financial organization and springtime rejuvenation.
As we go through life, most of us accumulate things that we no longer use or need. This may include almost-forgotten bank accounts opened years ago or online accounts with institutions you opened for a better interest rate. Often, we accrue this "junk drawer" of accounts, many of which have minimal balances, and some we don't even use anymore.
Having multiple accounts can make it difficult to remember the correct tax forms or download the proper statements to give accurate information to your CPA.
In other words, there is more chance for financial leakage, which could mean income getting lost, transferred, or not captured. It also opens up the risk for people to hack in and steal your account details, assets, or information.
You can use this time as an opportunity to close accounts that you no longer use. Then, transfer any remaining balances from the unused accounts and consolidate them so you have accounts with no more than one or two institutions. This balance transfer and consolidation makes it easier to track and move money around if needed.
Everyone is entitled to a free copy of their credit report. When you review your credit report, it will show a list of all the places you have ever applied for credit and whether the accounts are still open or closed.
You will want to look for open lines of credit that you no longer need or use. If you happen to find any, a smart next step is to contact those institutions and ask them to close that line of credit. Once you do that, it becomes one less place where hackers can steal your identity or information, leading to your credit score becoming impaired.
The third idea includes a little bit of actual cleaning, as it has to do with going through any old files, tax returns, financial statements, and warranties taking up space in your home office and converting them to electronic files.
I did this a couple of years ago, after my family and I had new garage door openers installed and the company had given us yet another warranty.
As I went to my file drawer and began flipping through warranties to file it, I found old ones from appliances that we didn’t even have anymore, as well as more important documents like the appraisal for my wife's wedding ring. I suddenly realized just how disorganized it all was.
My solution was to set up an online cloud storage account. These days, there are many to choose from, including some better-known ones like Dropbox, Microsoft's OneDrive, or Google Drive.
First, I created electronic folders and categories of items that you have in paper copy. For example, you may want to establish folders for tax returns, real estate closings, appraisals, warranties, home purchases, or basically anything else you think you need or want to track or hold on to safely.
After you establish and set up the categories, you will need a scanner to make those files electronic. I went to Amazon and was able to purchase a fairly inexpensive, high-speed, double-sided scanner.
For me, it was essential to find a model that could handle 30-40 pages at once so that I could put my entire tax return in there and have it scan the whole document. Then, it’s only a matter of scanning your records over the course of a weekend or a couple of days, labeling them, and adding them to the proper folder.
Once you scan and file your electronic documents, you don't need to retain all that paperwork. However, you’ll want to shred it and not just throw it away.
Now, you’ll have easy access to all your important files and documents — which can be a beast to keep track of — from the phone in your hand.
An important reminder: The IRS recommends keeping at least three years' worth of tax returns and supporting documents, so be sure to also scan supporting documentation if it’s less than three years old. For older returns, it’s not necessary to scan supporting documents, such as charitable giving receipts or mortgage 1098 statements.
It always feels good to clean up and perhaps even simplify your personal finances when you can. Keeping your finances clean all year can help remove the stress when tax time rolls around or when you’re looking for that important financial document.
So, this year, don't just focus on cleaning up your home — spring clean your finances while you're at it.
If you need additional assistance organizing your finances and planning for the future, please connect with one of our financial planners. Determining the right path for you can seem overwhelming at first, but remember: you don't have to go at it alone. Spaugh Dameron Tenny is here to support and guide you.
Shane Tenny is the managing partner of Spaugh Dameron Tenny. Along with hosting the Prosperous Doc® podcast, Shane has a true passion for behavioral finance, helping clients and audiences understand how to develop successful strategies based on their unique temperaments. An accomplished and highly engaging speaker, Shane is regularly interviewed for television and podcasts, is actively involved in the Financial Planning Association®, and contributes to industry advisory boards.
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