Organizing Your Finances During Tax Season
While the bemoaning of impending Tax Day has never grown old, the organizational system of your financial records probably has.
If you're housing boxes of old tax returns and bank records, strewn in attics or staking a monopoly on coveted shelf space, your filing system may need more than a dusting when it comes to spring cleaning. Rick Rodgers, financial planner and author of "The New Three-Legged Stool: A Tax Efficient Approach To Retirement Planning," recommends capitalizing on the current tax season to launch yourself into an organizational method worthy of the 21st century, before April 17.
“Most people are going through their records to get ready to file their return,” Rodgers says. “This is the time to get smart about what you need to keep and then set up a system to store it efficiently going forward.”
Not sure what gets promoted to the hard drive or demoted to wastebasket? Follow Rodgers five steps to utilize technology and effectively organize your finances for 2012 and beyond.
Out With The Old
Discard the records you no longer need: Tax returns older than seven years; bank records and credit card statements that are not related to the tax returns you're keeping; brokerage statements that aren't related to purchases of current holdings. Be sure to shred all your old documents before throwing them out.
Convert the documents you plan to save into digital images that are stored on your hard drive. Invest in a good scanner and scan as you go through your paperwork, shredding and tossing the hard copies as you go. On your computer, file by tax year so your 2011 folder will contain your tax return for 2011 and all pertinent bank records and receipts. Organize the previous six years the same way. Next year you can delete the oldest folder when you add the 2012 folder.
Save A Forest
All of the financial institutions you deal with would prefer to send your statements electronically. Stop receiving paper statements. Instead, download your statements electronically and store them in your new filing system. Most banks and credit card companies keep at least a year's worth of statements available. You need to download these files only once a year to complete the year's file.
Save Backups In Case Of Emergency
Make backup copies of your files on a CD. Choose a CD-R (recordable) as opposed to a CD-RW (rewriteable), because a CD-R cannot accidentally be overwritten. Depending on your computer operating system, you may be able to continue adding data to a CD-R each year until the CD is full. However, some operating systems won't allow that, so you'll need a new CD for each year.
Your new electronic filing system can be expanded to include all your financial records, from car maintenance receipts to pay stubs. Wills and insurance policies can also be scanned and stored but, of course, keep the originals of those in a safe deposit box or fireproof safe.