Financial organization is a cornerstone of a healthy financial life. At the most basic level, financial organization saves time and money because it aids in paying bills on time, finding 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 sets the stage for better decisions on investments, budgeting, debt and planning. Financial organization helps your working relationship with your financial professional because there will be less time spent looking for paperwork and more clarity around the overall financial situation, leading to more informed decisions.
While having a system to organize financial paperwork is important, it is not so important which system is followed but that a system exists. In most cases, a combination of electric and paper filing systems will do the trick.
Bills, statements, policies and other documents that are delivered online can be stored and backed up on a computer hard drive or through online banking websites, third party bill pay and website document storage platforms. Some websites offer budgeting and spending information and advice.
For couples, clearly establishing responsibilities for financial matters is an important priority. If one spouse manages the finances, the other spouse should be informed about what is going on financially, where important documents are stored and passwords for all online accounts.
What documents to keep and what to toss is another important part of becoming better organized. The IRS recommends retaining tax returns and any documents that support tax returns for seven years. Other documents such as paper bank statements, investment account statements and credit card statements can be shredded after a year, especially if they can be assessed online in the future if necessary.
Financial paperwork generally falls into the following categories:
- Credit Cards and Loans
- College Savings
- Retirement Savings
- Estate Planning
Let’s take a look at what documents you need to keep on hand in these areas.
Income Tax Planning
Tax planning is a forward-looking process that identifies strategies designed to reduce future income taxes. Note that income tax planning is not the same as income tax preparation, which focuses on documents required by the IRS. For income tax preparation, consult with your tax advisor.
A variety of documents are required to prepare taxes and assess your tax situation. Keeping proper tax records is extremely important for IRS, accounting and investment purposes.
Tax documents that should be safely stored and easily accessible include:
- Tax returns for the last 3 years
- Retirement plan information showing the amount you are eligible to contribute
- Paycheck stubs or statements showing regular income and unusual taxable distributions that may change your tax picture this year
- Statements showing major deductions, such as mortgage interest and property taxes
- Statements or other documentation showing the cost basis and current value of assets owned outside retirement accounts
- Information on charitable contributions
These are common investor accounts which you may or may not have. Keep policies, statements and other important paperwork for these accounts accessible to help you and your professional develop an investment strategy.
Investment documents that should be safely stored and easily accessible include:
- Checking accounts
- Savings accounts
- Money market accounts
- Certificates of deposit
- Brokerage accounts
- Mutual funds
- Life insurance cash value
- Retirement plans
- Employee stock purchase plans
- Stock options
- Real estate
- Precious metals and other collectibles
- Business interests and other investments
Credit and Debt Planning
Debt is often a significant part of an overall financial picture. Statements for loans will help get a handle on your level of debt, interest rate of that debt and loan terms.
Credit and debt documents that should be safely stored and easily accessible include:
- Credit cards
- Auto loans
- Student loans
- Business loans
- Personal loans
College planning is vital for parents. There are many types of college savings vehicles, so be sure to keep track of all accounts with funds saved by parents, grandparents, aunts, uncles and other relatives.
To stay on top of balances and track savings, these statements are useful:
- Statements of accounts earmarked for college (529 plans, Coverdell accounts, UGMA/UTMA accounts, accounts in parents’ names earmarked for college)
- Completed FAFSA (Free Application for Federal Student Aid) for students already enrolled or preparing to enroll in college
- Other documentation relating to student loans
Retirement is the largest financial goal for most investors. As such, it’s very important to keep track of all retirement accounts, including 401(k)s from current and previous jobs, traditional and Roth IRAs and other accounts such as 457 plans.
Retirement documents that should be safely stored and easily accessible include:
- Account statements and summary plan descriptions for all employer-sponsored retirement plans
- IRA account statements
- Social Security Personal Earnings and Benefits Estimate Statement
- 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 includes life, auto, disability, health and other coverage you may need as well as current or future Social Security benefits.
To manage and periodically reevaluate coverage levels, deductibles and premiums, retain these documents, including employer-sponsored insurance.
- Life insurance
- Disability insurance
- Health insurance
- Homeowner’s or renter’s insurance
- Automobile insurance
- General liability (umbrella policy)
- Professional liability
- Long-term care
- Social Security Personal Earnings and Benefits Estimate Statement showing survivor and disability benefits
There are two key aspects to estate planning: Wealth transfer (ensuring that assets are transferred to the right people) and estate tax savings.
Planning for and monitoring your estate requires maintaining these records:
- A copy of your latest will and letter of instructions
- Index of all assets
- Trust documents
- Advance directives
- Power of attorney for health care
- Power of attorney for financial matters
- Prenuptial agreements
- Beneficiary designations for IRAAs, life insurance, annuities and employer-sponsored retirement plans
- Statements or deeds of trust showing how assets are titled
- Pet care
There are also many other important documents that fall into a catch-all miscellaneous documents category. These include everything from a Social Security card to military service records to adoption and divorce paperwork.
Keep the list current by adding new documents, such as the below, as appropriate.
- Birth, death and marriage certificates
- Social Security card
- Vaccination records
- Military service records
- Deeds and titles to all real estate, autos and other hard assets
- Adoption papers
- Divorce papers
- Religious ceremonies such as baptism, confirmation, ordination, marriage and annulment paperwork
- Jewelry appraisal list for all items valued at more than $500
Elaine Floyd, CFP, is the Director of Retirement and Life Planning at Horsesmouth, where she focuses on helping people understand the practical and technical aspects of retirement income planning.
Amy E. Buttell is an Erie, PA based freelance writer. Her articles have appeared in leading publications including The Journal of Financial Planning, The Investment Professional, AARP: The Magazine and Consumer’s Digest.