Clean Up Your Finances in 7 Easy Steps

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Spring is here – the season of allergies, taxes, and cleaning house.

But when you get around to cleaning, don’t forget the paperwork. Since tax time is when we’re often sifting through paper, it’s also a good time to spring clean the family finances.

In the video below, Money Talks News founder and accountant Stacy Johnson takes a look at what paperwork you can trash and what you need to keep. Check it out, and read on for more advice to simplify your life…

Like Stacy said, we all have paper we don’t need. So let’s talk about cutting through the clutter and creating an organized system that will save you time in the future. The best place to start is where the video left off: how to handle what you’re throwing away.

1. Shred what you shed.

If it’s got personal information on it – your name, address, Social Security number, and anything else you wouldn’t want potential dumpster-divers to see – you should shred it. Scissors can work, and so can simply ripping it up, but if you’ve got lots of paper to trash, a shredder is a good investment. Several decent shredders are under $40 on Amazon.

Identity theft is a big issue (as I recently learned from personal experience). And dumpster diving is one way crooks can get the info they need. Shredding anything with with potentially useful information is one way to protect yourself. Learn about others in 7 Ways to Prevent Identity Theft.

2. Throw out the obsolete.

Stacy named a bunch of stuff to toss. Here’s the short list…

  • Old utility statements
  • Reconciled bank statements and ATM slips
  • Reconciled credit card statements
  • Old receipts and cancelled checks (unless they’re needed for taxes or proof of purchase for warranties)
  • Instruction manuals for things you know longer have
  • Expired warranties
  • Expired insurance policies

3. Plan short, medium, and long-term.

Some paper will be with you for life…

  • birth and marriage certificates
  • divorce, adoption, and immigration paperwork
  • legal documentation, including powers of attorney, wills, titles, deeds, and contracts
  • car titles

Then there’s the paperwork you’ll need to keep, but not forever: receipts for big purchases (for insurance purposes) and the final bills of any service you drop (Internet, cable, phone) – in case they say you owe them more.

4. Think taxes.

Anything that provides support for a tax-return should be kept for at least three years after the return is filed, because that’s how far back the IRS typically goes when auditing. Simply look at the deduction you took and you’ll know what to keep: receipts for home office equipment, professional dues, and business-related travel and entertainment expenses, as well as retirement account contributions, donations, medical expenses and deductible interest, and mortgage and property tax payments.

For the most part, only tax cheats need to keep paperwork longer – under-report your income by 25 percent or more, and the IRS can go back six years to audit. File a fraudulent return, or fail to file one, and there’s no limit – which is why everyone will also want to keep final copies of their returns forever, as proof they filed.

Want more specifics? Look at IRS Publication 552.

5. Don’t duplicate what’s digital.

If the goal is to have less clutter, take advantage of the Internet. Bank, insurance and investment companies, usually offer your statements online – see how far back they go. If your online history is available, there’s no need to keep identical paper statements at home.

6. Digitize your docs.

What about the stuff companies don’t keep online for you? Where there’s a will, there’s a way – a cheap document scanner runs $55 and will let you keep PDF versions on your computer, which you can e-mail or print as necessary. But be certain to maintain backups.

You can do that with a USB drive, CD, or external hard drive. Or you can use an online “cloud service” where you can access the files from any computer later. Check out Amazon’s Cloud Drive, iDrive (5 GB free), or Dropbox (2 GB free), which easily syncs your files with mobile devices and other computers. This is enough space for most people, although bigger paid packages are also available.

7. Start using software.

Stacy mentioned the Insurance Information Institute’s home inventory software. It’s free and helps track the belongings in your home as well as everything from insurance policies to your investments. (Note: The III says their software doesn’t work well with the Internet Explorer Web browser, so use another like Firefox or Chrome.)

Another idea is Evernote, a free program that can track your documents (and just about anything) by keyword, tag, or even text inside images. It also has a mobile app.

Everybody has their own way of doing things, so do what works for you. Just make sure there’s a method to your madness that saves time and hassle later.

Still got other spring cleaning chores to do? Check out our recent stories 5 Places to Turn Spring Cleaning Clutter Into Cash and Spring Cleaning? 4 Things You Need to Leave Dirty.