When you hear the term spring cleaning, odds are you think about tasks like wiping down your crown molding or sorting through the junk in your garage. But during a season that’s all about starting fresh, spring doesn’t just present a good opportunity to clean your home, but to organize your finances as well.
Disorganized finances — whether that means paper statements strewn throughout your home, or computer folders full of outdated financial documents — tend to cause stress. Some people even get so overwhelmed by the idea of tackling their disorganized finances that they neglect the subject altogether.
Whether your finances are in need of a complete revamp or just an annual tune-up, we’re here to share some tips that will leave you and your finances feeling rejuvenated this spring.
Toss Out (Most of) Your Paper Documents
It’s important to review account statements (bank statements, brokerage statements, retirement account statements, etc.) on a regular basis to make sure they square up with what you were expecting. Historically, this meant reviewing the paper statements that would come to you in the mail.
Now that the world has gone digital, however, it’s largely unnecessary to keep physical copies — especially since financial institutions keep records for years. Opting into electronic statements will allow you to continue staying on top of your critical financial information while reducing your physical clutter (not to mention helping the environment!). Existing account statements, meanwhile, can typically be shredded — this way, sensitive information is permanently destroyed, reducing the risks of identity theft or fraud.
If you find yourself tempted to hold onto a document, ask yourself: Do you really need to keep it? Will you need it in the future? Or are you just holding onto it because you’re not sure what else to do with it?
There are some people who feel like they need to have physical copies of statements in order to stay on top of and organize their finances. If you fall into this camp, just make sure that you store them in the same place each month in chronological order and consider shredding documents older than one year.
Read More: Organize Your Finances in 10 Steps
Hold Onto Key Documents
There are a few documents that you might want to keep copies of when you organize your finances. In the event that you were to unexpectedly pass away or become incapable of looking after your own finances, paper copies can help your financial executor settle your estate. This includes:
- Your estate plan: Either you or your attorney should hold onto the original documents
- One statement for each of your accounts: These can be stored either physically or in a secure cloud file that a trusted person can also access if needed. Swap them out with updated account statements once per year, making sure to shred or delete the outdated versions as well as statements for any accounts that you no longer hold.
- Stock certificates or paper savings bonds: If you hold any physical copies of these, make sure to convert them into an electronic format — this guarantees that your certificates are honored and mitigates the risk of them being lost, destroyed, or stolen.
Keep Digital Copies of Expense Receipts
Any solid tax strategy should factor in tax credits and deductions, which can often significantly reduce your tax liability when added up. For anything you plan on itemizing on your tax return, you’ll want to keep a copy of the receipt or statement (digital versions are fine). This will help you both calculate your tax write-offs and cover yourself in the event of an audit.
This includes categories like:
- Medical expenses, especially if you have an HSA
- Donations/charitable gifts
- Home improvements
- Business expenses
- Student loan interest
- Mortgage interest
Generally, it’s advisable to retain all copies of receipts and statements for at least three years in case of an audit. However, the duration may vary depending on the type of receipts and statements involved, If the receipts pertain to home improvements or involve tracking the cost basis of an asset, it’s best to hold onto them indefinitely.
Organize Finances By Category
Sorting out which files/documents to keep and which ones to toss is a major step towards financial organization, but if you really want to clean up your finances, they can’t just be randomly stored — you should learn how to organize your finances into a system.
Try breaking them down into different categories with folders and subfolders when necessary, so that everything has a clear place to be filed. This might include:
- Account statements
- Bank
- Credit card
- Brokerage
- Retirement plans
- Bills
- To pay
- Paid
- Expenses
- Medical
- Donations
- Home improvements
- Business
Organizing your files/documents like this will make it much easier to find what you’re looking for when you need it, whether it’s time to pay bills or you need to gather tax info for your CPA.
Pro Tip: Stay organized throughout the year. James Clear, author of Atomic Habits suggests that if a task will take you less than 120 seconds (e.g., filing a receipt in your new system) then you should do it now.
Adding it to your list can add anxiety and often make the task seem longer.
Declutter Today for a Brighter Financial Future
This season, remember that your finances can benefit from a spring cleaning just as much as your home. It might seem intimidating — especially if you’ve got an extensive backlog of outdated or unorganized files or documents — but if you chip away at them little by little with the tips on how to organize your finances above, you’ll get there sooner rather than later.
Not only will you find peace of mind once you organize your finances — it will make it much easier to stay on top of things moving forward, too.
And if you’re looking for someone to help you come up with a strategy to reach your financial goals, Team Hewins is here to help. Our team of CERTIFIED FINANCIAL PLANNER® professionals can assist you with everything from estate planning to retirement savings to tax strategy and more.
Schedule your free consultation today!