Stuff to Do While Quarantined: Clean Up Financial Records

Clearing Financial Clutter

Marie Kondo has transformed how we look at cleaning a closet and organizing a home. Her book The Life Changing Magic of Tidying Up teaches us how to hold our possessions in our hands to see if they still give us joy. And if not, donate, throw out or find someone new who can appreciate what we once did.

The same idea applies to your personal finances. One of the biggest impediments of moving forward in your financial life is getting bogged down in too much paper, too much complexity, not knowing where to start. What you need is some excavation in your financial life. When you’re done clearing the clutter, you can more accurately assess what you do value and where you need to go next.

Organization is key.

Excavation and Organization: Declutter, File, Shred

One of the most frequent questions I answer is “What can I throw out?” It does the soul good to get rid of what we don’t need.

People hate financial clutter. Unfortunately most people don’t have good filing systems or ways of decluttering their financial records. After a lifetime, this can accumulate into a gigantic mess that someone else is going to have to sort through eventually.

Cleaning up and organizing your financial records can help you find what you need and know what you can shred. Let’s start by looking at your filing system. Some of you may be able to scan paper documents or only get electronic documents that you can store in files on your computer or your devices or in the cloud. Just be mindful of protecting your data from cybercrime and make sure you back up your records.

But for many people, there are paper financial records that will need to be dealt with and filed. Keep financial papers in four main places:

• Pending
• Current
• Archive
• Safe Deposit Box or Fireproof Home Safe

Before you do any filing, think about what you can just get rid of. Be sure to shred anything with personal information on it. We all have to be much more conscious of protecting our identities from cybercrime.

Let Go Of What You No Longer Need

You are probably holding on to more than you need. You can let go of the following:

• Marketing materials and envelope stuffers. Most bank and brokerage statements come with materials about other products and services. If you aren’t interested in them, get rid of them right away. If these don’t have any personal information on them, recycle them.
• Cancelled checks. Keep any cancelled checks you need to support tax deductions, insurance claims or the cost basis of your home (major home improvements). You probably don’t need to keep checks for routine purchases once you’ve reconciled your bank statements – shred them.
• ATM receipts. Once you’ve reconciled your bank statements, you can shred these.
• Annual reports. Read these when you get them and then recycle them. Even better—many are available online now so check with your brokerage company to see if you can be notified electronically.
• Proxies. Either cast your vote right away or toss them out if you don’t plan to vote.
• Paid bills. Once you’ve paid the bill you don’t need to keep the statement unless you need it to support your tax deductions. Some people like to keep one or two months’ worth of utility bills on file in order to prove residency or quickly find service contact information.
• Pay stubs. Keep one year’s worth to reconcile with your employer’s W-2 form. If it matches, you can shred the individual paystubs.
• Credit card receipts. Match your receipts to your monthly statements when you get them. If they match up, you can shred the receipts unless you need them to document your tax-related expenses, insurance claims or the cost basis of your home (major home improvements). Save receipts for major purchases until the warranties expire.

Once you’ve cleared out what you don’t need, you’re ready to file.

Pending File

In the Pending file, keep bills or other financial issues that need immediate attention. Once a week review what’s in that file. Once you’ve taken action, put those papers in an inbox to be filed in Current Files.

Current Files

Current files should hold papers that you regularly go in and out of or records of one year or less:

• Bank accounts by type or account number (i.e. checking, savings)
• Brokerage accounts by account number
  • Keep statements for a year; then archive the December or full year statement.

• If you have access to all statements online, there’s no reason to keep the paper copies too.
• If you comfortable receiving electronic statements monthly, then you don’t need to file anything. Many brokerages will give you a price break if you choose this option because they save a lot in mailing costs.

• Cars by make or model
• Credit card statements by bank and account number
  • Keep statements for a year.
  • Archive any statements after a year that you might need to justify home capital improvements for cost basis or that record what you paid for big ticket items.
• Current tax return related papers
• Estate planning related papers. Original documents, like your will, should be stored at your attorney’s office or a secure place your executors and powers of attorney can access.
• Financial Planning (can include current Net Worth Statement, Investment Policy Statement, Retirement Projection)
• Home records by property
• Insurance statements by type of insurance (i.e. life insurance, health, homeowners)
  • Keep current declaration pages.
  • Store actual policies somewhere secure like a safe deposit box.
• Job-related paperwork
• Last tax return
• Loans
  • Keep monthly statements for a year.
  • Archive only what you need to prove what you paid per year or when you fully paid off a debt.
• Medical records by doctor
• Phones or cable by provider
• Property tax
• Retirement accounts by account number. Same guidelines as brokerage records above.
• Technology
  • Keep an inventory of everything that runs on WiFi in your house (smart phones, tablets, Apple TV or similar device).
  • Keep an inventory of all hardware including computers, laptops, printers.
  • Keep an inventory of what is hard wired in your home including security systems, whole house sound systems, internal networks.
  • Keep a list of who to call to repair any of the above!
• Utilities by name
• Valuables
  • If you have items that should be insured, consider personal articles insurance. Keep records of what you list on this policy and how often you have these items appraised.
  • You should keep a home inventory that goes room-by-room and photographs and lists all personal property. Use this to make sure you are adequately insured on your homeowners and personal articles policies as well as for claims should you experience a fire or robbery. It happens more than you might think. Once your inventory is complete, store a digital record of this in a secure place outside of your home.

Archive Files

Archive files can hold similar files to current with the exception that these are papers that are over a year old that you feel you need to retain including:

• Car records
• Estate planning documents that your attorney doesn’t hold or that aren’t in the safe deposit box
• Home capital improvement records
  • You can add to your cost basis of your home through capital improvements, although not repairs. Many people forget to keep records of what they spent on major projects. By adding these costs to your basis, you may pay less in capital gains when you sell your home.
• Loan documentation
• Receipts for big ticket items that may be useful for resale
• Tax returns for the past seven years (longer if your state requires more years)
  • Keep any supporting documentation that may include cancelled checks or credit card statements.
• Warranties and appliance manuals
  • You may want to keep track separately of all appliances and valuables with serial numbers.

Safe Deposit Box

Critical documents should be kept in a bank safe deposit box or a fire-proof safe. If you use a home safe, make sure a thief can’t just pick up the whole thing and carry it off. Consider what works for your situation and your space limitations. Here’s a list of key documents to get you started:

• Birth certificates, adoption papers, marriage licenses, divorce papers, death certificates, citizenship papers
• Titles, deeds
• Insurance policies
• A digital record of your home inventory and any cherished photos

Work Smarter

Once your filing system is set up and your current paperwork is under control, your next step is to set yourself up to keep control in the future. Here are some things you can do to work smarter:

• Go paperless. Sign up for electronic statements and confirmations on your investment accounts. Pay your bills and do your banking online. Buy a scanner to save copies of documents you want to keep (make sure you back up all your electronic records). Purchase a shredder to help you safely destroy sensitive material and prevent identity theft.
• Create a new daily, weekly or monthly habit of organizing your financial paperwork. Once you’re in a routine that works for you, you’ll be able to stay organized.
• Coordinate with your organizer/calendar. As you file, make notes in your calendar of due dates and action items.
• Create a financial inventory of all the pieces that are important to understanding your financial situation. This could include a list of financial institutions, account numbers, safe deposit box contents and a list of important contacts such as your financial advisor, attorney, and accountant. This will help you keep track of what you’ve got, but it will really help your loved ones figure out what they need when you are gone. I’ll give you a template in the next installment of Stuff to Do While Quarantined.

You don’t need to be an organizational guru to be able to find your tax return when you need it. You just need to clear out what you don’t need, organize what you want to keep, and work smarter at staying on top of it.

Just cleaning out a drawer or closet can give you a sense of joy because you get rid of what you no longer need and you can find what you use all the time. While you may not particularly enjoy the process of cleaning up financial records, you only need to do this once a year, other than periodic filing. Put on music you love or some television marathon (not about COVID19) and try to enjoy the time it takes to clean up your records. If you can enlist someone to help you, the time passes more quickly and can even be fun. Just keep your social distance.

Once your records are organized, think about what you do have that you want to keep. Ask yourself these questions:

• Bank accounts
  • Do you have too many? What is the purpose of each? Are you getting competitive rates? Lots of people need to consolidate and simplify. Be clear about your intention.
• Brokerage accounts
  • See Bank accounts…
• Retirement accounts
  • When is the last time you looked at what you were invested in within your company retirement account? Is it time to review that? Change your asset allocation? Lots of people “set it and forget it” at work and never change anything for years at a time. If you don’t attend to your finances, don’t be surprised when they don’t perform as expected.
  • Do you have too many old retirement accounts? We see this all the time. People get busy and don’t roll over their old 401(k) accounts or consolidate old SEP accounts when they no longer have self-employment income. Clean this stuff up. You’ll get better economies of scale, you’ll have an easier time tracking everything, you’ll probably make better investment decisions.
• Insurance
  • How much life insurance do you have? Too much for your current circumstances? Too little? If something happened to you, could your kids finish college? Could your spouse pay off the mortgage? If you have old policies, when do they mature? Should you consider converting some of those policies to paid-up coverage?
  • Is your disability coverage keeping pace with your salary? If you have coverage through work, is there a cap? Is that enough to take care of your family? Do you need more?
  • Health insurance: For people approaching retirement, this can be scary and sometimes keeps people in the work force just to have health insurance. If you are thinking of retiring before age 65 (Medicare eligible), how will you pay for private coverage? Have you thought about supplemental health coverage in retirement (Medigap)? How about long-term care insurance?
  • Property and casualty: Have you looked at homeowners, auto and personal liability lately? Do you know if you are covered for cyber attacks? Do you know how long you can cover adult children driving your cars? You don’t need to look at this every year, but has it been more than five years since you’ve taken a look? If you are in an area of the country that is prone to mud slides, earthquakes, or fires, do you have adequate coverage? Is it time to consider a different carrier that caters to higher wealth issues?
• Credit cards
  • How many do you have? What rates are you paying? What perks are you getting? How many people are on each card? Do you have household employees with cards that you should review? What are the limits?
  • Have you checked your credit rating lately? With the constant flood of compromised data, have you frozen your credit records?

Clean Up Your Act

Excavation and organization isn’t sexy or glamorous. But it can be liberating. It can be freeing. Once you’ve put in the work on cleaning things up (and admittedly that can take some time!), you’ll be able to focus on the things that really matter to you.

Just like cleaning your closets or Kondo-izing your clutter, clearing out what you no longer need from your financial life and making room for what you really want sets the foundation for a healthy, happier present and future.

And maybe it will help you pass the time while we all watch and wait. Now go wash your hands and get started.

The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

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Copyright © 2020 Stevens Visionary Strategies, LLC, by Sue Stevens. All Rights Reserved. Reproduction or Use Without Permission Is Prohibited.