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Set up a Financial Record Keeping System
No matter what sort of system you prefer to use, and your choices range from old-fashioned paper-and-file folders to state-of-the-art software such as Quicken or Microsoft Money, you will need to start by streamlining your financial life. Here are some easy steps you can take that will help you begin:
- Consolidate. It makes sense that having fewer accounts means taking less time to manage them all. If you have accounts with several investment companies, consider consolidating them all under one fund family or one account with a discount brokerage company; you’ll reduce your paperwork and likely your fees. Multiple investments with similar objectives and holdings, such as large company growth mutual funds, only add to your financial record-keeping stress without offering any of the benefits of diversification.
- Automate. In addition to having your salary deposited directly into your bank account, you can also automate your investments, loan payments and bills, often at no charge.
- Save trees, save time. Most financial institutions offer electronic statements that can be downloaded directly to your computer and even imported into your money management software. Additionally, many health insurance companies offer e-statements for all those “explanation of benefits” forms that seem to multiply like rabbits in your mailbox.
- Keep only what you really need. Hang on to paperwork tied to major life milestones, such as births, adoptions, marriages, divorces, wills and trusts. But you may want to trash those three year-old McDonald’s receipts. Similarly, you definitely do want to keep any paperwork related to major assets (homes, cars) for as long as you own them and six years after. And hold on to any tax-related financial records, including tax returns, for six years which is the amount of time the IRS can reach back and ding you for an audit. Even if you accidentally lose something crucial, most paperwork can be reproduced elsewhere via municipal court records or financial institutions, so you should be able to produce it in the event of an IRS audit.
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