File Folders containing Tax and Financial Documents

6 Tips For Financial Spring Cleaning

Tax Season is over and summer vacation is just around the corner, so right now is a perfect time for some financial spring cleaning. Time to clear your desk of paper clutter, purge those tax documents and pay-stubs from ten years ago, and get your financial house in order. Here are 6 ways to get organized and have that fresh-start feeling for spring.

1. Organize and shred old documents

What to keep and what to toss? Sometimes it feels like too much to figure out, so you just do the safe thing and keep EVERYTHING. While keeping everything isn’t necessary, there are some things you need to hold on to. Tax returns you should kept indefinitely. They’re proof that you filed and paid. Supporting tax documents for your return, like W2s, 1099s, or proof of charitable contributions should be kept for 7 years. The IRS has 3 years to audit you unless it suspects fraud so make sure you keep these things on hand. Go through your bank statements, pay stubs, utility bills, and receipts for medical expenses and only keep the documents that are necessary. These items should be kept for a year so that you can use them for your return but, after that, it’s time to get out the shredder. Always be sure to dispose of any important personal information safely. Don’t just throw your information in the trash, as that’s an easy way to become a victim of identity theft.

Not sure if you should keep an item? Scan it and keep it on your computer! The IRS accepts scanned copies of receipts, so reduce your paper clutter and store it digitally.

2. Go paperless

If you don’t want to have to sort through all that paper again in a year then it is time to make the move to paperless statements. It’s so much easier to keep track of your finances when your bank and credit card statements are all online and easily at your fingertips. Since most companies cut off access after a year or 18 months, you can download your statements from your financial institutions so you have copies on your own hard drive. Also it saves a ton of space in your desk drawers.

3. Back up and then back up your backups

Your first step should be to get an external hard drive. Do not depend on your laptop to safely store all of your information forever and ever. Kids (or you) spill drinks, devices get fried, and then your important financial information is lost for good. Download electronic copies of your financial records to your computer and then back them up on a separate hard drive. You can also save your records on a secure cloud storage service like Dropbox or Google Drive. Set a calendar reminder to do this annually and you’ll never have to worry about losing your information.

4. Create an “In Case Of…” folder

It is worthwhile to make sure that the important people in your life have access to these backups you’ve made, in case something were to happen to you. Make sure you have your information – including your account numbers and login IDs with their passwords – in a safe place, such as a password-locked folder on your hard drive. Have a list of bills you pay each month and your other regular financial responsibilities on file. It’s best to label the folder something slightly less obvious than “Important Financial Info”, but be sure your partner knows what it’s called and how to access it, just in case.

5. Review your budget and tackle your debt

Go through your statements and separate your purchases into three categories – Necessary, Desired and Spontaneous. The necessary category should be filled with items like your regular utility bills, groceries, and insurance payments. The Desired category are those monthly expenses like your Spotify or Netflix subscriptions, or the new couch you finally bought to replace your old Craigslist buy when you were in college. The Spontaneous category has items like your nightly take-out dinner habit or those impulsive Amazon one-click buy orders. See how these columns stack up against each other. Once you realize how much you may be spending on spontaneous purchases, set a budget for those extra items, and make sure you funnel that extra money into your savings.

6. Set It And Forget It

After you look at your budget, push that extra cash to your savings by creating a monthly automatic transfer. It’s much easier to budget now and set up a weekly or bi-monthly amount to transfer over with your financial institution, than it is to get to the end of each month and see what’s left that could be moved over to savings. Having a transfer to your savings set as the same day as your payday is a good idea. You’ll be less tempted to spend it if it’s automatically being funneled into a savings account.

Set some monthly funds aside to automatically transfer to your 401(k) or an IRA as well. Putting a little of each paycheck into your retirement investment will get you a lot further than making one lump contribution right before tax time. And, don’t forget you can do this with your automatic bill-pay too! Link your bills up to your checking account and eliminate the worry of skipping a payment or having those annoying late fees.