Practical money matters by Jason Alderman
IF YOUR financial life is confined to boxes, file cabinets and various piles of statements and receipts that only you can navigate, it might be time for a little de-cluttering.
Software- and internet-driven advances in money management systems not only provide paperless alternatives to planning and tracking savings, spending and investments; they also make finances easier to handle in an emergency.
So, if you’re thinking about resetting your record keeping, here are some steps to get started.
Think about financial goals first. Before tackling the job of reorganizing your monetary recordkeeping, think through your current financial objectives and consider what changes might give you better data and efficiency to achieve them.
You might want a system that tracks spending, saving, budgeting and on-time debt payments. If you already have that system in place, you might want more detailed information on retirement or your child’s college fund. Consider involving your financial and tax advisers in the discussion and see what suggestions they have.
Create a system that makes it easy for loved ones and financial professionals to help in an emergency. If something were to happen to you, could a loved one easily navigate your finances? When organizing, always keep your spouse, children and will executor in mind.
Consider creating an ICE – “in case of emergency” – file and let your representatives see it in advance. On paper, or on a computer document or spreadsheet, your ICE file should be a handy guide or index to find the following quickly:
• Contact information for doctors as well as financial and tax advisers;
• Locations for all essential estate documents, including your will, your health and financial powers of attorney and any letters of instruction you have written to accompany them;
• All ownership documents for real estate, automobiles and other major assets;
• Usernames and passwords for internet-accessible financial accounts as well as personal websites and social media if such items need to be updated or removed;
• Contact information and statement access for all savings, investment and debt accounts, particularly joint accounts that will be used to pay bills;
• An up-to-date list of monthly bills that need to be paid on time; and
• All insurance information including health, home, auto, disability and business policies.
Know what paper documents you need to keep or shred. Here are some general rules:
Keep all tax-related documents for up to seven years, including annual tax returns, statements that show a gain or a sale of a security or the purchase or sale of a major asset like real estate.
Also keep mortgage documents, vehicle titles and insurance policies, as well as several copies of birth and death certificates, marriage licenses and divorce decrees, deeds and title documents.
With identity theft on the rise, it is generally better to shred financial documents before they go in the garbage. After recording all transactions, immediately shred your store and ATM receipts and credit-card statements.
After a year, shred monthly bank-account statements unless you or a family member are close to qualifying for state Medicaid benefits. States generally require Medicaid applicants to save bank and investment statements for anywhere from three to five years to qualify.
Estate documents and directives generally should be kept in their original paper form in a safe, accessible place with copies as advised. Other documents can be digitally scanned for printout as needed. Many all-in-one printers have a document-scanning feature and, today, there are scanning apps available for smartphones as well.
Finally, no matter how you revise your record keeping, create a backup system. If you are wedded to paper documents, consider keeping copies at a secure offsite location or with a trusted friend or relative.
If you’ve gone digital, external hard drives or cloud storage are possibilities. Above all, protect all password information and regularly check your credit reports throughout the year to monitor potential information breaches.
Bottom line: Build a financial record-keeping system that not only saves you time and money but also helps you reach financial goals faster.
Jason Alderman directs Visa’s Practical Money Skills For Life financial education programs. Follow him on Twitter at twitter.com/PracticalMoney. His articles are intended to provide general information and should not be considered legal, tax or financial advice. Always consult a tax or financial adviser for information on how the law applies to your individual financial circumstances.