YOUR MONEY: Organizational tips simplify financial management

May 1, 2001
Maintaining a person filing system...can help you make better finanicial decisions, and it may also help you save money at tax time.

Henry David Thoreau never imagined how complicated life would get when he penned, "Our life is frittered away by detail ... simplify, simplify," back in 1854. His words continue to be relevant today, especially when it comes to your finances.

Without an organized system, you may feel like you're fighting an uphill battle while trying to keep track of investment transactions, warranties, bills, and receipts. Here are few tips on helping you "simplify, simplify."

  • Create general filing categories. These can be divided into several more manageable groupings. For example, "taxes" could be divided into "investment transactions," "property taxes," "charitable contributions," etc. "Warranties" could be split into "large appliances," "small appliances," "personal items," etc.
  • Set up monthly bill-paying files. You can create designated files for credit card bills and receipts, utility bills, bank statements, etc. Then as each bill arrives and is paid and the checking account balanced, you can file it appropriately.
  • Consolidate accounts. If you have assets spread out at several institutions, you may want to consider the benefits of consolidating your assets into a single account or at least limiting the number of institutions with which you do business. By consolidating assets such as IRA accounts, you can simplify record keeping, making performance analyses and reporting easier - particularly when making IRA withdrawals.

Knowing what to keep

Bank statements, W-2 forms (showing salary income), Form 1099-R (showing payments from a pension), and 1099 forms (reflecting interest or dividend income) are the basic documents you need to verify income from employment, pensions, and investments. You should also hold onto your mutual fund statements. Records showing cost basis, dates of transactions, exchanges, withdrawals, and shares received are all important - both for the current tax year and the year in which an investment is liquidated.

If you have an IRA, save copies of all related forms, including Form 5498, 1099-R, and 8606. For holders of SIMPLE IRAs, your account trustee is required to provide you with an account report by January 31 of each year. Keep this report with other important IRA documents.

How long should you keep records?

The rule of thumb is three years, but many experts advise seven years as being optimum. An important exception to the three-year rule is to retain indefinitely any records that prove the basis of assets owned. It is important to keep those records for as long as the assets are owned and then for at least three years after reporting their sale on your tax return.

Maintaining a personal filing system and knowing which documents you need to retain not only can help you make better financial decisions, it may also help you save money at tax time. If you have any additional questions pertaining to your tax documents or other financial records, contact your tax adviser and your financial adviser.

As a reminder, here are the top 10 New Year's resolutions for financial fitness:

  • Don't put off setting up a financial plan - Utilize a personal inventory process and set realistic goals.
  • Increase savings - Develop a monthly budget. This will give you a clear picture of current and projected expenses and could help you save money. Separate the expenses you know remain the same each month from the ones that fluctuate. Find out where your money is going and see if you can reduce spending and increase savings. The power of compounding is on your side, so the earlier you get started with a plan, the better.
  • Reduce debt - Your budget can assist you with what you can spend without denying yourself the things you need. Set a goal, such as reducing your debt by $2,000 for the year. Don't forget to pay yourself first. Use credit as little as possible and try to make over and above your minimum credit card payment when possible.
  • Establish an emergency cash fund - Ideally, having several months of living expenses put aside for an emergency is the best recommendation. This can help avoid using credit to make ends meet.
  • Save up for big-ticket purchases - Plan ahead to replace appliances, furniture, or a car. Instead of using credit, have a savings plan and budget for these items.
  • Explore ways to fund your children's education - Consider options, such as Education IRAs, Roth IRAs, and traditional IRAs. Look at options that fit an overall plan for education savings.
  • Examine your insurance coverage - Ask yourself if your income has changed since the policy was established. Be sure that you and your spouse (if applicable) have examined all of the issues - not just for today, but for the future as well, ensuring that you have adequate coverage.
  • Consider an estate plan - An estate plan can protect your loved ones and your assets. In some cases, failing to have a will or an estate plan has exhausted some estates with fees and other costs related to estate administration.
  • Plan your retirement - Ask yourself when you want to retire. Then, find out if you are saving enough for the standard of living you want after retirement. Think about current and anticipated sources of income before finalizing any plan.
  • Make sure you have income during retirement - Arriving at retirement with sound resources is one thing; however, maintaining those resources during retirement is another. Ask yourself how much you will need each month to maintain your standard of living without depleting your resources too soon. Officially leaving the workforce presents a new set of financial issues to consider. To achieve the right answers, you will need to ask yourself the right questions.

Kathleen Adams, RDH, BS, is a financial adviser with Waddell and Reed ( She is currently trying to initiate money-management workshops for hygiene students and specializes in working with dental professionals. She can be reached at (800) 210-1357.