Ah, spring. For most of us, it’s an energizing time when we feel motivated to clean out, clean up, and start fresh.
Even with that motivational spirit, I confess that I have a love-hate relationship with spring cleaning. I dread the thought of it. I procrastinate diving into it. But the moment I get started, I begin to feel that sense of rejuvenation (my favorite task: cleaning the garage floor—and even painting it this year!).
When it’s all done, I absolutely bask in having a clean garage again. To walk into that space knowing everything is clean, organized, and efficient is pure spring bliss, and I’m ready to move on the garden and planting the spring flowers.
So while you’re full of all that spring energy, I urge you to set aside just an hour or two to focus on spring cleaning to simplify your finances. It’s a job that most of us neglect year after year. That feeling of accomplishment and organizational bliss may be that much easier to achieve. No broom needed!
Follow these four steps and you’ll be well on your way to your own spring cleaning bliss:
1. Shred documents you don’t need
While the IRS has a standard period of limitations of three years, we recommend holding on to your key documents for 7 years to cover all your bases. Ask your tax preparer for an electronic copy of your return and save it on a flash drive or at a secure online file hosting service such as Drop Box . Not only will you need this information in case of an audit, but your financial advisor may request a copy of your return to review it for mistakes (we find at least one error in over 50% of the returns we review) and determine the most appropriate withholding on your IRA withdrawals. Feel free to toss all those old bank statements and check registers in the shredder too. The less unneeded paper you have on hand, the more easily you can find the important stuff.
2. Organize documents you do need
If your financial documents are a mess, your financial life can feel pretty messy too. And tax documents aren’t the only important papers you need to track. Some people prefer to save things in paper form using a file cabinet. Others prefer to maintain everything they can electronically. Whatever your preference, set up a system so you can easily store and retrieve information, including:
Personal identification and documents related to major life events: Be sure your passports; security cards; marriage, divorce, and birth certificates; car titles; wills; and other important documents are safe and accessible at home or in a safe deposit box at your bank.
Bank statements: Start by consolidating accounts, updating your bill pay service, and shredding old paper statements. Most banks offer online access to statements for more than 12 months, so there’s rarely a need to fill your files with paper statements. But be sure you know how to access up to 3 years of statements in case of a tax audit.
Investment account statements: If you have multiple retirement or other investment accounts, be sure you have a complete list of your accounts, including login information if your accounts are online. (Be sure to share this with your financial advisor to be sure he or she has the most current and complete information.)
Tax documents: Keep and file W-2s, 1099s, brokerage tax forms, interest receipts, and receipts for deductibles until they hit that 7-year expiration date.
3. Plan your spending for the coming year
Even if you have a good emergency fund in place, planning for and prioritizing expenditures can help keep your budget healthy all year round.
Create a budget. A recent Gallup poll revealed that two-thirds of Americans don’t have a household budget. So you’re not alone if this has slipped through the cracks. Figure out how much is available to spend on your wish list after your basic expenses are covered, set your priorities, and be sure you’re not spending beyond your means.
Reduce debt. If you’ve racked up some debt in the past year (or more), make paying it down a top priority. Zero consumer debt is a great goal and one of the best rewards spring cleaning can offer.
Home maintenance projects. These can add up to big dollar signs, so planning is key. Start with deferred maintenance projects like cleaning out gutters, mending that fence, or exterior painting. And be sure to plan for large projects like a new roof or kitchen remodel. Good planning can help keep you on budget. And talk to your financial advisor if you need to leverage a HELOC or other source to fund the project.
4. Update your estate planning documents
Keeping these documents current is often (and easily) neglected, so it’s a great item to include in your spring cleaning list. Check to be sure your beneficiaries are correct (I can’t tell you how many divorcees forget to make this change!). Be sure your fiduciaries (Executor, Trustee, or Health Care POA) know where they can find important documents. Complete a Personal Property Memorandum to indicate which of your heirs should receive your car, family photo albums, grandma’s china, and more. Lastly, send a copy of your will to your financial advisor so it’s available when needed.
If you’re overwhelmed, take one step at a time. If that doesn’t do the trick, get some help. When my aunt moved into assisted living and I was taking care of her finances, I hired a group who completely cleaned out the house, including sending me her financial documents and arranging an estate sale to dispose of the remainder of her household even though I was thousands of miles away. If you don’t know where or how to get help, ask your financial advisor for guidance. Whatever you do, don’t let the mess continue to grow. Make financial spring cleaning a priority and enjoy the delights of spring.