A step-by-step guide to manage financial records
When you think, "I need to organize my finances", you're probably just referring to updating your budget and arranging your bills. However, you can take this a step further by organizing your financial, insurance and tax records, as well as other documents related to your financial security, such as wills and property deeds. Organizing these financial records will help you protect your security and that of your family. Here's how to organize your personal finances.
- Create a list of key financial documents. Use our Documents and Financial Records Checklist to track down your records and make sure they are current. Include all your banking and investment accounts, as well as property and insurance records. Store your checklist in a secure place.
- Secure financial records against damage or theft. Many of your financial documents include information that can be used by fraud artists to apply for credit or steal your identity. In addition, fire and flooding can destroy your insurance and personal identification records just when you most need them. Store your most important documents in a water or fire proof locked container or in a safety deposit box.
- Keep your documents up to date. Many of your most important documents have an expiration date. Review your checklist regularly to ensure you don't miss important renewal dates, such as for your driver's license, passport, and automobile and homeowners insurance. Start the renewal process early so you have time to research better deals and avoid last-minute inconveniences.
- Save records for tax and insurance purposes. According to the Internal Revenue Service, you should hold on to most tax records and related receipts for between three and seven years. Label your files and records by year, and don't discard financial documents without checking whether you'll need them in the future. For example, receipts for home renovations may help support insurance claims. Consider scanning important documents before disposing of the paper files.
- Review your financial plans. Organizing your finances is the perfect time to review how your investments are performing and to see whether you are on track to meet your financial and retirement goals. Compile all the records you need to determine your net worth. Up-to-date, organized records will also help your financial advisor give you the most accurate advice.
- Ensure your family can locate important documents. In the event that you are injured or die, you can reduce the stress for your family if they can easily find your insurance records or will. For electronic records, there are now online services, such as www.assetlock.net and www.legacylocker.com, that let you give your loved ones access to your Internet accounts after you die. Another option is keep an up-to-date record of your important computer accounts and passwords in a secure location, such as a safety deposit box.
- Dispose of documents safely. If you no longer need any document that has identifying or financial information on it, shred it first before disposing of it. This will help prevent identity thieves from stealing your personal information.
Organizing your finances is not a one-time event. Pick a date that's easy to remember, and commit to re-organizing your records at least once a year. The pay-off will be less clutter and more peace of mind.
What's next? The importance of managing your account balances
