Simplify Your Financial Life

Financial Planning

Simplify Your Financial Life

Now is the perfect time to do some financial spring cleaning, from tossing old papers to digitizing important documents.

EDITOR'S NOTE: This article was originally published in the April 2010 issue of Kiplinger's Retirement Report. To subscribe, click here.

What a relief. You've filed your income-tax returns, and now it's time to stow away your receipts and other records. Your storage space is already bulging with thousands of papers, everything from utility bills from 1987 to repair bills for a car you sold years ago.

Maybe it's time for a little financial spring cleaning -- tossing paper, consolidating accounts, digitizing records and bundling services. With your year-end investment records still fresh in your mind, perhaps you're realizing that six IRAs and 40 mutual funds are a little excessive. And why do you need that stack of fund prospectuses that you don't intend to read anyway? You can always find them online.

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Simplifying your financial life won't only reduce the clutter. You'll free up time for things you really enjoy and probably save some money to boot. You'll also be able to keep better track of your investments.


The first step is to get rid of most of the paper. Buy a crosscut or confetti shredder to protect against identity thieves.

Keep your annual tax returns forever. But unload the supporting documents, such as receipts, after three years. That's generally how long the IRS has to initiate an audit.

Shred any monthly mutual fund reports that have been summarized on a year-end statement. Keep the year-enders, which show reinvested dividends and capital-gains distributions. Retain any other records that show the purchase price for stocks and mutual funds. You'll need that information when you sell shares.

Save records pertaining to your house as long as you live in it. Documents showing the purchase price, and what you spent on improvements, may be useful when you're trying to prove the value of your home to potential buyers. Also, if you sell your house at a big profit (more than $500,000 for couples filing a joint return, or $250,000 for single filers), home-improvement expenses can be used to lower your tax bill.


Hold on to records showing whether you made after-tax contributions to IRAs and 401(k)s, so you don't overpay taxes when you withdraw the money. IRS Form 8606, which you're supposed to file with your return each year you make a nondeductible contribution to a traditional IRA, tracks your tax basis in the account.

Toss your ATM receipts and bank withdrawal and deposit slips when the transactions appear on your statements. The same goes for credit-card receipts, unless you need them for tax purposes.

You can throw out your pay stubs once you get your Form W-2, unless your December stub shows tax-deductible charitable contributions made via payroll deduction. You can also get rid of paper copies of most monthly bills -- for utilities and cable TV -- unless you need them for home-office deductions.

Go digital. The start of a new decade may be the time to take the step toward a paperless world. You can save crucial documents by scanning them and storing them on your computer.


Mindy Luebke, president of The Paperwork Assistants, in Arlington Heights, Ill., recommends the Fujitsu ScanSnap s1500 (list price $495), which will scan documents and create PDFs. The scanner will then generate separate files on your computer for banking, utilities, investments and other categories. Many other scanners will do the trick, too.

You can back up documents on a disk or a USB flash drive. But Luebke notes that those devices can be lost or stolen. She prefers a remote backup service. "If there's a fire or your computer is ruined, all of your records are backed up remotely and encrypted," she says.

Luebke belongs to the American Association of Daily Money Managers, a group whose members help individuals organize their paperwork, pay bills and balance checkbooks. To find a money manager near you, go to or call 877-326-5991.

To further stem the paper onslaught, sign up for online banking and bill-paying. The initial set-up on your bank's Web site takes time because you will have to type in the account numbers and addresses of the companies that will get paid. But it's a breeze after that.


As an alternative, you can arrange for automatic debit for your big bills. Utilities, credit-card issuers and phone companies will pull money from your bank account when payments are due. You'll be notified by e-mail or paper statement. Also, set up direct deposit of your paycheck, Social Security benefits and IRS refund to your bank or brokerage account.

Ask your bank and credit-card companies to suspend snail-mail delivery of statements. Your statements will reside on the company's Web site where you can review them and print out images of checks you need for tax purposes.

Many brokerage firms will suspend regular-mail delivery of account statements and other information. Ann Schultz, vice-president of customer development for T. Rowe Price, says there's been a 50% increase in the past year in the number of clients going paperless.

T. Rowe Price clients get e-mail alerts when account statements are posted online, where they remain for seven years. Clients can also receive annual reports, prospectuses and other publications electronically. A recent online T. Rowe Price newsletter offered advice on fixed-income investments and tax planning. Investors who wanted to follow up could go from the newsletter to their accounts. "If someone wants to take action, it's all one click away," Schultz says.

Merge and purge. Perhaps you have five traditional IRAs, plus several 401(k)s from previous employers. By consolidating your retirement accounts, you can reduce paperwork, lower fees and exert better oversight of your investments. "When you have accounts all over the place, you lose track of what you have," says Susan Fenimore, a certified financial planner at the Financial Consulate, in Hunt Valley, Md.

First make a list of your retirement accounts. Open an IRA at a brokerage firm to accept transfers from the other accounts. (Or use one of your existing IRAs.) Then instruct the plan administrators at your former employers to directly roll the assets into the IRA. And tell the custodians of the other IRAs to conduct a trustee-to-trustee transfer into the super IRA.

To further consolidate, look for a bank or brokerage firm that will allow you to do both your investing and banking. You can easily transfer money among accounts, perhaps moving proceeds from a stock sale to your checking account.

As you go through this exercise, be sure to update your beneficiary designations on your accounts. Speak with your financial planner or lawyer if you're unsure about the proper titling of your accounts.

Organize your investments. Now that your retirement assets are in one place, you can get a better handle on your holdings. It's now time to make sure you're adequately diversified -- but not too diversified.

You can scrutinize your portfolio with one of the many interactive investment tools on the Internet. Do you really need three small-company growth funds? Use Morningstar's Instant X-Ray tool ( to find overlaps in your investments.

At TD Ameritrade (, you can try out its Amerivest Guided Portfolio free even if you're not a client. With this tool, you plug in the number of years until retirement, your income and your current assets. You'll also answer questions on your risk tolerance and goals -- for instance, whether you're seeking capital preservation, aggressive growth or something in between. The tool will then suggest target allocations for about 15 asset and sub-asset categories, from domestic midsize-company value stocks to short-term fixed income.

Then return to Morningstar's Instant X-Ray (it's on the TD Ameritrade site) and plug in your holdings by dollars or percentages, and the tool will show you how much you're invested in each stock sector and investment category. The Morningstar Interpreter goes deeper. The Interpreter looked at one sample portfolio and determined it was aggressive and suited investors who "are comfortable with a higher level of risk."

Using all three tools shows you how you can rearrange assets into categories that meet your goals. For instance, says Diane Young, director of retirement and goal planning at TD Ameritrade, "If you have an aggressive portfolio and you want to be more conservative, the tools will help you figure out the changes you need to make."

If you hold the securities at TD Ameritrade, its Portfolio Planner will analyze your holdings based on your goals and risk tolerance. If you're overweighted in, say, international stocks, it will suggest how much to sell. If you're underweighted in small-company growth stocks, it will suggest several mutual fund choices. You can execute buy and sell orders on the site to get your allocations on target.

Put documents in one place. If you become incapacitated or die, your family will need access to key documents quickly. You can place your documents on a disk, on a secure Web site or in a binder.

The organizer should include the names of your accountant, lawyer, executor, trustee, banker, financial planner and your employer's human resources manager. List bank and brokerage account numbers, and passwords to Web-based accounts. Also list information on real estate and business holdings.

The documents should include the deed to your home, the titles to cars and tax returns for three years. List all insurance policies. Include Social Security statements, birth certificates and a description of pension benefits.

Note the location of your safe-deposit box and keys, as well as the location of wills, trusts, powers of attorney and advanced medical directives.

Bundle your services. Why pay separate bills for your phone, TV cable and Internet service? Telecommunication firms now offer packaged services, which often run $99 a month. By bundling your telecom services, you'll eliminate several bills, while reducing costs by at least $20 a month.

You'll also likely get discounts of 15% to 20% if you buy your car, homeowners and umbrella liability insurance from one company, says Madelyn Flannagan, vice-president of agent development, research and education at the Independent Insurance Agents & Brokers of America. Move coverage of any vacation or rental property to that single company as well.

Then change all the expiration dates to the same day. "If you move all the insurance to one company with common expiration dates, you'll only get one or two bills a year," Flannagan says.

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