David Bach
Even in this era of Internet banking and easy-to-use financial software, you probably have a jumble of bills, various piles of credit-card statements, and a variety of financial accounts. Don't worry; you're not alone. But until you get your finances organized, you can't start creating financial security -- and ultimately reaching your financial dreams.
The good news is that it only takes motivation and a few minutes of your time to get started. To get organized, you need to find your "financial stuff." Get about a dozen hanging folders and a box of at least 50 file folders to place inside. Label the hanging folders as follows:
Tax Returns
Inside this folder, include eight file folders, one for each of the last seven years, plus one for this year. Mark the year on each folder's tab, and place in it all of that year's important tax documents, such as W-2 forms, 1099s, and a copy of all the tax returns you filed for that year.
As a rule, you should keep old tax records for at least seven years in case the IRS wants to audit you. I recommend holding onto them even longer, but that's up to you.
Retirement Accounts
This is where you'll keep all of your retirement-account statements. Create a file for each retirement account that you hold, especially the quarterly statements. You don't need to keep the prospectuses that the mutual-fund companies mail you each quarter.
However, if you have a company retirement account, you should definitely keep the sign-up package indefinitely because it tells you what investment options you have -- something you should review annually.
Social Security
Put your most recent Social Security Benefits Statement in this folder. If you haven't received one by mail, request it online at www.ssa.gov [http://www.ssa.gov/]. You should receive an updated statement every year so be sure to file the most current document.
Investment Accounts
In this folder, put files for each investment account you have that's not a retirement account. If you own mutual funds, maintain a brokerage account, or own individual stocks, each and every statement you receive should go in its own labeled folder.
I recommend holding onto all of these transactions for at least the past seven years as they may also impact your income taxes.
Savings and Checking Accounts
Keep your monthly bank statements here. Even though many banks now offer online access to these records, it's safest to also store printed receipts of used checks and your savings statements for the past three to seven years. If you ever have a dispute about any of your accounts or need to document that a payment was made, these printed records will help you.
Household Accounts
If you own your own home, this should contain the following file folders: "House title," "home improvements" (where you'll keep your receipts for any home improvement work you do, which may impact your future taxes), "home mortgage" and "utilities." Hold onto these records indefinitely; they will be invaluable should you decide to sell your home.
Credit-Card Debt
Capitalize the word DEBT on this label so that it stands out and bothers you when you see it. My hope is that this won't be one of your larger hanging folders.
Create a separate file for each credit-card account you have. Keep all your monthly statements in the files. You should hang onto these records for at least a year, but I recommend longer if you use your credit cards for business expenses or to track tax write-offs.
Other Liabilities
This covers any records dealing with debts other than your mortgage and credit-card accounts. This includes college loans, car loans, personal loans, etc. Each debt should have its own file, with each file containing the loan note and your payment records. Keep these records at least until the debt has been paid in full.
Insurance and Medical Records
This should contain separate folders for each of your insurance policies, including health, life, car, homeowners or renters, disability, long-term care, etc. Keep these records up to date every year with the most recent policies and payment history on file.
Family Will or Trust
This should have a copy of your most recent will or living trust, along with the business card of the attorney who set it up. You should review these documents every few years, or when a life-changing event occurs, such as having a child or getting married.
Children's Accounts
If you have children, this file should hold all statements and records pertaining to college savings accounts or other investments that you have made for your kids.
Spend an hour on this project, and you'll feel great about the progress you've made. You're working toward organizing your financial life, and that's a major step closer to achieving financial security.
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