How to Organize Your Financial Life
In four easy steps
Posted May 14, 2015
Tax time is over and you swear it won’t be like this again.
Boxes, files and receipts everywhere—it looks like a paper bomb went off. But every bit as annoying as the mess is the confusion about what to keep, what to toss and what to do with all of it.
It’s time to tame the beast.
Or float him down the river on RAFT—the system I recommend to control the clutter of financial information that invades every corner of your life. RAFT—refer, act, file, toss—is a quick triage system to make sure you put your focus only on what truly matters.
Refer: This is the hot button—the things that need immediate tending to, usually by a specialist of some sort. If there is some sort of actual or potential legal action against you or your financial relationships, you need to contact your attorney and insurance carrier. A notice from the IRS should be dealt with by calling your CPA to make sure the notice is handled correctly and on time. Even if you are a die-hard do-it-yourselfer, there will be times when you need to cough up the dough and get help from someone who knows more than you…
Digression Alert: My father was the ultimate DIY'er. He was meticulous in his scraping, burning, preparing and painting multiple coats on each shingle and shake, but it took him an entire year to do each side of the house. By the time the house was completed on all sides, it was time to start again. Sensible? Nah…
Act: These items require you to take action—filling out a form, making a phone call, reviewing information. They might include a notice from your health insurance carrier that your claim is in dispute. Or perhaps while reviewing your investment statement you see a purchase or sale or some other transaction that you don't remember authorizing. When you receive an Anniversary statement from a life insurance policy, you should review it immediately and match it against the expectations provided by your agent. If there are discrepancies, call your agent and find out why.
File: File all tax related items—your Federal and state returns, W-2 forms, 1099's—and supporting documentation and keep them for at least three years. Before you chuck those papers, check the IRS website (http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/How-long-...) for the circumstances when you need to keep returns longer. Set up a permanent insurance file for your Anniversary statements and renewed policies. Review and then file your year-end investment statements, bank statements etc. Download statements and policies directly where possible and scan everything else if you want to keep actual paper to a bare minimum. Just be sure to save them in a folder on your computer and keep a backup on a secure flash drive and/or your cloud.
Toss: Anything that smells of advertising and solicitations earns the right to enter your recycling bin. Interim investment statements should be reviewed and then shredded. The same goes for Annual Reports, Semi-Annual Reports and prospectuses; by all means, take a gander, review it, use it to read when you're having trouble sleeping and then dump it. And there’s no reason to keep paper copies of your credit card statements after you’ve reviewed them, although you might want to keep a scanned copy of the annual summary.
The key to making RAFT work for you is—like most successful systems—to work it daily. The mail (snail and e) comes in, you sort by category and you know AND TAKE the appropriate action.
If the idea of "tossing" is monumentally difficult (throwing something away is so...so....so permanent!), learn to take a deep breath, release your inner hoarder and say buh bye to stuff you don't need.
Getting your financial life organized is about taking control. About improving your comfort with your money. And having more time on your hands to say, paint the house…