It’s that time of year. Time to freshen-up the house, your closet, and the yard. Another important item that should be on your spring-cleaning “to do” list: tidy-up your personal financial situation. Don’t know where to begin? Here’s an easy four-step checklist!
#1: Organize your important documents.
Although many companies are delivering information electronically, some businesses still send paper documents via snail mail. Even after signing up for every possible paperless statement, documents can still pile up. Here’s a list of common documents and what you should do with them.
- Tax returns – Retain permanently but discard supporting documentation after seven years.
- Pay stubs – Keep final end-of-year pay stub but discard all others.
- Bank statements – Discard after each year’s tax return has been prepared.
- Credit card statements – Toss after each year’s tax return has been prepared. However, if you need them for long-term tax records, keep them with that tax return.
- Paid bills – Discard after payment has been confirmed unless they are tax-related documentation.
- Investment statements – Keep until the account is closed and the information is no longer needed for tax purposes.
- Social Security reports – Save the most recent annual statement illustrating earning and benefits.
- IRA records – Retain for seven years after you close your IRA.
#2: Check your credit report.
The first step to maintaining good credit is being aware of your credit score and what’s on your report. You should review your credit report at least once per year. Why? For one, it’s important to ensure you aren’t a victim of fraud or identity theft. If your report contains information that you don’t recognize (e.g., names or account numbers), report it immediately. Secondly, credit agencies can make mistakes. The only way to correct them is to check your credit report for errors and notify the agency of incorrect data.
The good news is, it’s easy to do. The Fair Credit Reporting Act (FCRA) requires the three main credit agencies (Equifax, Experian and TransUnion) to provide you with a free copy of your credit report once per year. All you have to do is visit www.annualcreditreport.com to order yours. Why is knowing your credit rating so important? Maintaining good credit means you won’t have any unwelcome surprises when you apply for a new credit card, auto loan, or mortgage!
#3: Review your beneficiary designations.
When was the last time you checked your 401k beneficiaries? How about the beneficiary named on your employer-provided life insurance when you first started your job? Chances are you haven’t checked either of them recently. Think you’re covered because you updated your last will and testament? It doesn’t work that way. Assets with designated beneficiaries transfer automatically, regardless of what is written in your will or trust.
You need to keep your listed beneficiaries up-to-date to ensure that the named individuals and charities reflect your current wishes. This spring, take time to review all your retirement accounts (401k, 403b, IRA, etc.), life insurance policies, and annuity contracts to make certain the appropriate beneficiaries are named.
And while you’re at it, review all your estate documents, including your power of attorney, living will, health care representative, as well as your will and any trust documents, to ensure they are still in sync with your wishes. Don’t have estate documents? Now’s the perfect time to contact an estate planning attorney for help!
#4: Evaluate retirement savings - increase if possible.
Do you know how much money you’re saving for retirement? If not, take inventory of the amount you’re contributing to your 401k, 403b, IRA, or other retirement accounts on a monthly or annual basis. Then determine what percentage of your income your retirement savings represent. Having an idea of exactly how much money you are saving is the first step for this check-list item.
Once you have a handle on how much you’re saving, try to increase that amount. Many experts recommend putting 15 percent of your gross income toward retirement – at a minimum. If your current retirement savings fall short, consider bumping up your contributions to meet the recommended target. Increasing the amount of money you put aside each year by 1 to 2 percent (or more, if possible) will help to ensure you are financially secure during your retirement years.
Using this four-step checklist to clean up your personal finances will give you the same sense of accomplishment as getting your house all spic-and-span for the spring season. More importantly, reviewing your financial situation periodically will give you a sense of control over your financial life!
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