02. Now’s prime time to get your financial house in order

Getting and keeping your financial house in order is an important household task all the time, but this year in particular. With all the financial uncertainties occurring you want your important paperwork and digital files readily accessible.

Quick: do you know where’s your deed to your house or your pink slip to your car? When’s your auto registration due? Where’s your employee benefits booklet? A key and fundamental step in sound financial management is getting organized and staying that way.

Good organization is the foundation for making wise fiscal decisions. Even with the help of technology, we still have to deal with a rising mound of personal and financial paperwork.

Paperwork starts with our birth certificate and keeps getting bigger and more complex with each coming year. Bills, statements, medical records, taxes, kids’ SAT scores, warranties and receipts — the flow of information can easily seem overwhelming, especially when scattered files or critical pieces of paper go astray. And who has time for long-term planning when there are bills to pay and last year’s tax records to get ready for the tax preparer?

Investing a little time now to set up or fine-tune a system that works for you will simplify your record-keeping and financial management forever. You’ll also benefit by:

• Saving time when you pay bills, work on tax returns or make financial decisions.
• Avoiding overlooked expense reimbursements or tax deductions you’re entitled to.
• Being sure that in a family emergency, critical documents and information are accessible to those who need them.
• Eliminating stressful last-minute searches for information or documents.
• Avoiding penalties because of missed or late payments, or being caught short of funds when large obligations unexpectedly come due.

GETTING STARTED

Think of organizing your finances in four general areas:

1. Paperwork. This is all about managing information. We all have birth records, school records, health records, insurance policies, tax records, bank statements, paid bills, correspondence.This information is commonly disorganized and difficult to access quickly. The key here is to give yourself some flexibility by setting up and using a filing system divided into five categories — Primary Documents, Action Files, Main Files, Historical Files and Family Memorabilia and Projects — as outlined in the sidebar.Also, using a “Things To-Do List” and calendar to track things you need to accomplish and remember can be helpful. Keeping these near a current list of the names, addresses, phone numbers and e-mail addresses of your family, friends and financial and household advisers can also be a real time saver.Obtain a credit report each year to see if it is accurate and up-to-date. This can save you time and trouble in the future. You can get a free one at www.annualcreditreport.com or www.ftc.gov/bcp/edu/pubs/consumer/credit/cre34.shtm.
2. Net Worth. This is what you own, less what you owe.Once a year it’s a good idea to inventory what you own and what you owe, and create your own personal net worth statement. Compare it to last year’s statement and see if you are improving your financial position.When you do this, list the “fair market value” of what you own, not what you paid for items.
3. Cash Flow. This involves more than just creating a budget. Understanding what you earn and how you are using your money gives you more power over your life.Ask yourself: Where can I achieve just as much or more satisfaction by spending less money? Putting and chipping on the practice green instead of buying a bucket of golf balls at the driving range? Renting a video instead of going to the movies? Making a gourmet lunch instead of eating out? Waiting another year to buy your next car or take that special trip?Managing your money wisely, not emotionally, is the key to gaining control over your financial life and giving you the best chance of reaching and maintaining your lifelong goals.
4. Employment Benefits. For millions of workers and small-business owners, employment benefits are a hidden paycheck. Any amount your employer contributes to your insurance — health, vision, dental, disability, automobile, long-term care and life — future retirement, financial planning and other benefits is money you don’t need to spend with your after-tax dollars.It is a good idea to review your benefits package annually to see that you are taking full advantage of what’s available in your particular situation.

ORGANIZE YOUR PERSONAL FILING SYSTEM Organizing your files into the following five categories: Primary Documents include birth certificates, stock confirmations, employee benefit statements, last two tax returns, insurance polices, wills, trusts, powers of attorney. They should be kept in a financial organizer and readily available in a safe, secure location such as a two-hour-rated fireproof safe. Action Files are bills to be paid, current year tax information and pending information. Main Files hold information pertaining to the 11 areas of personal finances: personal information, assets and liabilities, cash-flow planning, employment benefits, goals, insurance, financial independence and retirement planning, major expenditures, investment planning, tax planning and estate planning.   Historical Files hold non-current information that you want to keep, such as tax returns more than three years old, past personal and business agreements, etc. Family Memorabilia and Projects are those hard-to-file but important-to-keep special projects such as kids’ school papers and landscaping and remodeling plans. Abridged Home Filing System Outline

This information is brought to you by The NAEPC Education Foundation your estate and financial planning partners. © Copyright NAEPC, The NAEPC Foundation and Valentino Sabuco, CFP^®, AEP^®.

If you would like to learn more about this systematic approach to managing your finances please visit our publication at www.estateplanninganswers.org/category/resources/publications

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