How to Clear Out Financial Clutter

By Andrea Cannon on 9 August 2016 0 comments

Clearing clutter out of your home can make you instantly more organized and can simplify your life. Clearing away any unnecessary items can also help you find happiness. The same concept goes for your finances. By clearing out financial clutter, you can decrease financial stress in your life, save time during tax season, and get a better grip on your personal finances.

What to Keep

The first step in clearing away paper clutter is deciding what to keep and what to toss.

Tax Records

It is crucial that you keep any tax records for seven years, as the IRS can audit you up to seven years later. This is especially important if you are self-employed. If you are ever hit with an IRS audit, you may need to produce physical documents, so it's a good idea to keep the records together in a large envelope or folder for each tax year. (See also: To Shred or Not to Shred: How Long to Keep Your Tax Records)

According to LearnVest, you'll want to keep the following for tax purposes:

    • Previous income tax returns
    • Pay stubs
    • Financial statements for investment accounts
    • Bank statements
    • Credit card statements that have a record of tax-deductible items you purchased

If any of the above items can be pulled up online and printed, then you won't need to keep a paper copy.

Important Personal Documents

Certain items should never be thrown away, such as a marriage license, birth certificate, will, life insurance policies, and record of paid mortgage. You want to keep these in a secure place, like a filing cabinet or safety deposit box. It's also a good idea to keep medical bills and canceled insurance policies for at least three years.

Anything related to your home, such as repair bills and the bill of sale, should be kept for as long as you own the home. The same rule applies to your vehicles.

You will also want to keep contracts, insurance documents, and retirement plan records for as long as they are still valid. You may also want to keep receipts for major purchases, like expensive furniture, in case you need to file an insurance claim in the future.

Warranties

It is important that you keep any warranties or guarantees for as long as they are valid. If the warranty requires you to send the original UPC code, simply staple the warranty, scan code, and receipt together. Write the warranty expiration date on the front so that you can go through your warranties and toss any expired ones at the end of the year.

The One-Year Rule

In most cases, you can dispose of the following items after one year, once they've been reconciled with your W-2 and annual statement:

    • Paycheck stubs
    • Bank records
    • Cancelled checks
    • Quarterly investment statements

If you need any of these items for tax purposes, then it's best to keep them for at least three years.

What to Toss

According to the National Association of Professional Organizers, 80% of what we file never gets looked at again, so it's time to start tossing unnecessary files and paperwork.

Monthly Statements

In most cases, any utility, phone, credit card, and loan statements can be pulled up online, so there's no reason to keep a paper copy for your records. Some financial institutions will even offer a discount to customers if you choose to receive your statements online or via email. You can also call and request statements later, if needed. If you like keeping financial statements around, consider just keeping the year-end statement for your records. (See also: 5 Ways to Finally Make Your Finances Paperless)

Receipts and ATM Slips

Unless you will need the receipt for tax purposes, in most cases, it's a good idea to throw the receipt away. If you think you may need to return the item at some point, then keep the receipt until the return period has expired. Once you balance your checkbook, you can also dispose of any ATM deposit slips.

Mutual Fund Prospectuses

Mutual fund prospectuses can pile up rather quickly. Instead of keeping the financial clutter around your home, simply look through the prospectus for important changes or information and then chuck it. You can always pull up the prospectus online if you need it.

Close Accounts You Don't Need

Once you've gotten a handle on your bills and which accounts you have, you may find that you have accounts open that you don't need. For instance, if you have more than one bank account, it may be a good idea to close the ones with the highest service fees. Having fewer accounts makes tracking, monitoring, and balancing your budget easier.

If you have various investment accounts or retirement accounts from former employers, you may want to roll over your old accounts to your new employer's plan so that you won't have to worry about managing investments all over the place. This can also save you money on investment account fees. If you're planning on selling stocks or investments, then you'll want to keep the records for at least three years as documentation for capital gains taxes.

What You'll Need to Buy

For especially important documents, such as stock certificates and government savings bonds, you may want to consider investing in a safety deposit box. This will ensure that you know where the documents are at all times and that they are safe from harm. A quality paper shredder can also help you securely shred and dispose of documents, so you won't have to worry as much about identity theft.

To make organizing more fun, you may also want to invest in colorful folders or organizational tools that you like. This will also help keep you organized in the future, so you'll never have an unpaid bill hiding under a mess of paperwork again.

Make It Fun

Organizing your financial life doesn't need to be something you dread. Play some good music or have a glass of wine while you organize. You may also want to treat yourself at the end of a large decluttering session with a good meal or movie.

What to Do Next

Once you've cleared out the clutter, consider organizing your accounts in a spreadsheet or updated budget. The more your budget and finances are organized, the less paperwork you'll need going forward.

Cleaning out your financial clutter can lead to less risk of identity theft, more organized records, and better financial planning. So the sooner you get started, the sooner you can enjoy these valuable benefits. It can also help you get a better idea of what your financial assets and debts are, so you can create a better budget for your life.

It's Not a Sprint — It's a Marathon

Organizing your financial clutter is means for celebration. However, this doesn't mean that the work is done. It's important to continue organizing your financial documents consistently so that they don't become overwhelming again. Try organizing all of your financial documents and spend 15-30 minutes per week going through your bills, financial statements, and other important documents that require your attention. This will ensure that you are not dealing with another mess of papers again in the near future.

Do you have other tips for clearing out financial clutter? Please share your thoughts in the comments!

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