There are two cornerstones to embarking on any financial planning effort. The first is to get a handle on your income and expenses and the second is to get organized. This article is going to discuss how to create a system to organize your bills, statements, policies, and other financial paperwork.
Financial organization saves time and money because it aids in paying bills on time, being able to find needed documents during tax season, providing proof of payment, disputing credit cards or billing errors, and avoiding the stress of dealing with piles of unorganized bills and paperwork. It also helps your working relationship with your financial advisor as you’ll have more clarity around the overall financial situation, leading to more informed decisions about investments and financial plans.
The actual organization system you put in place is not as important as actually putting a system in place. For most people taking the first step in organization is the hardest. Take the plunge. In most cases a combination of electronic and paper filing systems will do the trick.
Any documents (bills, statements, policies, ….) that are delivered online can be stored and backed up on a computer. You may want to use an external hard drive for backup or you can also use an online service. I use sugarsync.com. Another popular tool is carbonite.com.
Paper Filing System
A good old filing system can do the trick of storing documents. One thing I like to use with my clients is a three ring binder with separated folders for each area of their financial lives. The tabs the organizer contains are Emergency Contacts, Insurance, Financial Plan, Investments, Review Meetings, Advisory Process, Budget and Cash Flow Management, Net Worth Statements, Education Plan, Bank Documents, Retirement Plan, Estate Plan, Charitable Giving Plan, Tax Information, Titles and Deeds, Warranties and Contracts. The folders are tilted towards financial planning, but you can come up with whatever categories work for you.
If you are a little tech savvy there are online tools that can help with organization bringing all of your accounts into one centralized location. Instead of having to log on to a different website for each of your accounts you can aggregate them to one view. Two of these services that I like are Mint.com and HelloWallet.com
Whether you organize online or via a paper filing system there are certain documents you want to keep that generally falls into the following categories: investments, taxes, credit cards and loans, college savings, retirement savings, insurance, and estate planning
What Documents to Keep
You may not have all of these different kinds of accounts, but having the policies, statements, and other important paperwork of the ones you do can help: Checking , Savings, and Money Market accounts, CD’s, Brokerage accounts, Mutual Funds, Annuities, Life Insurance cash value, IRAs, Retirement plans, Employee stock purchase plans, Stock options, Stocks, Bonds, Real Estate, Precious metals and other collectibles, Business interests and other investments
Income tax planning
Tax planning can be used to identify strategies designed to reduce future income taxes. These may include tax-loss harvesting, investing in tax-advantaged vehicles, identifying tax deductions that may have been overlooked, or creating tax deductions such as setting up a qualified retirement plan. Note that income tax planning is different than income tax preparation which focuses on documents required by the IRS. The tax documents that should be safely stored are income tax returns for the last three years, paycheck stubs , statements showing the cost basis and current value of assets owned outside retirement accounts, statements showing major deductions such as mortgage interest and property taxes
Credit and debt planning
Credit cards, mortgages, auto loans, student loans, business loans, personal loans are all documents that are good to store. It’s a good idea to obtain a copy of your credit report which you can get for free once a year
There are many types of college savings vehicles, so be sure to keep track of all the account with funds saved by parents, grandparents, aunts, uncles, and other relatives. To stay on top of balances and track savings keep Statements of accounts earmarked for college, completed FAFSA forms for students already enrolled in college
Retirement planning is usually the largest financial goal for most investors. These documents are vital for staying on top of savings and investment goals: Account statement and summary plan descriptions for all employer-sponsored retirement plans, IRA statements, Social Security Personal Earnings and Benefits Estimate Statement (PEBES), Account statements for all assets, a budget showing expected living expenses in retirement, employee benefits information on health and retirement benefits, veteran’s administration record
Risk management is another vital aspect of your financial life. This includes life, auto, disability, health, and other coverage you may need. Retain these documents: Insurance policies and current policy statements for the following – Life insurance, disability insurance, health insurance, homeowners or renter’s insurance, automobile insurance, general liability (umbrella policy), professional liability, long-term care
There are two key aspects to estate planning: wealth transfer and estate tax saving. Planning for and monitoring your estate requires maintain these records, including: a copy of your latest will and letter of instructions, index of all assets, trust documents