5 tips for regaining order in your financial life

Spring is a good time to organize your finances, as you probably have just accessed some records to file your tax return. Try to cut clutter, reduce duplicate accounts and improve digital access.

There's never a bad time to take a hard look at your financial life with an eye on cutting clutter and perhaps reducing duplicative account-maintenance fees. But the tax-return filing season can be an especially good opportunity, as you likely have just gone through your files looking for key documents, statements and receipts.

Here are five suggestions for simplifying your financial situation:

1. Assess your finances like corporations

It's hard to know where you're going without knowing where you are. That's why advisers routinely suggest that people draw up a budget to track income and expenses.

Budgets typically are done on a monthly basis. Just be sure to include items that don't recur every month, such as semiannual insurance payments or quarterly estimated tax payments, along with utility bills, holiday gift outlays and other expenses that ebb and flow over the course of a year.

With accurate budgets in hand, it will be easier to identify expenses where you can cut back to free up money for saving.

Dana Anspach, a certified financial planner at Sensible Money in Scottsdale, Arizona,  suggests making a computer spreadsheet to track expenses. Each time a bank or credit card statement comes in, "that's your trigger to update it," she said.

She also recommends updating your net-worth statement, which tracks assets less liabilities, at least once a quarter so you can monitor your progress over time.

Publicly owned corporations are required to publish standard financial documents on a regular basis, including a profit/loss statement and balance sheet. For individuals, a budget tracks income and expenses over a given time period, as does the profit/loss statement.

The net-worth statement calculates assets against liabilities at a specific point in time like the balance sheet does. Money you save from budgeting better will show up as increased assets in your net-worth calculation.

2. Make a detailed financial inventory

Along with budgeting and tallying your net worth, it's smart to list what you own, what you owe, whom you deal with and where all your accounts and documents are located.

Merrill Lynch has a handy eight-page booklet, which can be found online, that provides a comprehensive checklist. You also can find it by searching for Merrill Lynch and the booklet's name: "Organizing Your Financial Life: Critical Information at your Fingertips."

The booklet is really just a lengthy list of people, documents, accounts and other facets of your financial life to fill in. It's a place to jot down contact information for relatives and friends, doctors, tax-return preparers, attorneys and others. There's a place to identify and locate documents such as deeds, passports, tax returns, car titles, credit card statements, estate planning papers, life insurance policies and more.

If you complete the checklist, you will have a clearer picture of your financial life and an easy way to find key documents and access contacts and accounts.

3. Take a machete to financial clutter

Once you have made a detailed assessment of your financial situation, look for places to trim. For example, Merrill Lynch recommends consolidating your retirement accounts, which can cut down on statement mailings and possibly reduce account-maintenance fees. The same holds for credit cards – two or three are probably sufficient.

Anspach said she uses only one bank and one brokerage.

"I used to have multiple business and personal banking accounts – it was a mess," she said. "If you have accounts in multiple places, it is difficult to manage them, and it is a lot more work when you need to update an address, bank account or beneficiary."

The more you do business online, the less you need paper statements. But assuming you still receive some paper statements, you really only need to retain the most recent monthly or quarterly statement, along with any year-end summaries.

Should you need a statement from some earlier period, you often can obtain it from the financial company.

Nor is it necessary to retain bulky files of income tax returns. The basic rule is to keep  returns for the past three years, along with records that show what you paid for homes and other investments that you haven't yet sold.

More detailed tips on tax record keeping are at irs.gov under "How long should I keep records?" The IRS also can supply some back tax records through its "Get a tax transcript" service at irs.gov.

4. Don't neglect your digital life

You can declutter your finances by using online accounts, automatic bill paying options, direct deposits and so on. It also can make sense to put key records on a computer flash drive that you can pop into a home safe or bank safe-deposit box. That can be wiser than leaving records on personal computers, tablets and smartphones, as those devices can be lost, damaged or hacked. 

If you have online accounts, you also should have a strategy for transferring the digital keys to someone else, in case of incapacity or death.

"Keep a record of all digital user names and passwords so that the accounts can be accessed (after death)," advised John Vryhof, an estate-planning attorney at Snell & Wilmer in Phoenix. "And make sure that the person in charge knows how to access that record."

Some accounts require an extra "dual authentication" step to gain access, such as by having the financial company text a number to the owner's cell phone. Make sure to include instructions for this too, he said.

To prevent premature unauthorized access, you might provide a list of key accounts and user names to one trusted relative or friend, and a corresponding list of accounts and passwords to someone else, with instructions for them to get in touch if the need arises.

5. Make your system easy to use

Whichever tactics you employ, simplicity should be a goal, even if it takes some initial time and effort to get everything running smoothly.

"When it comes to just about anything in life, if it’s easy, you’re more likely to do it," said Anspach. "This is particularly true with things we want to put off anyway, like eating healthy, working out or managing finances."

Anspach suggests setting up an online filing system to store documents using categories that make sense to you. Some of her personal choices include: Taxes, investments/retirement, real estate/mortgages, insurance, business and income/expenses.

When notices and statements come in, she files them in the appropriate folder, making the information easy to locate later. Anspach said she has gone virtually paperless, though she recommends keeping paper copies of certain documents including wills, powers of attorney and living trusts.

She also suggests setting up an email address for financial matters that's separate from your personal one, possibly using the word "finance" or "financial" so these notices are easy to spot.

"I found that when the financial statements and electronic invoices were mixed in with my personal emails, it was easy to overlook them," she said.

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