As most of us stay close to home, we address projects on the “to do” list. Now is the perfect time to clear out home offices and review the integral aspects of our financial lives. If you have not done so yet, it is time to get started.
Financial Spring Cleaning
Just like when you go through your closet or food pantry to determine what to keep, what to donate, and what to toss, you need to do the same with your financial life.
Perhaps even more important than what you keep is what you can shred, recycle, or delete. Keeping unnecessary documents and statements makes it harder to locate vital personal finance information in a hurry. Most of us waste a lot of time trying to find things on our computer and amidst our papers. Getting rid of unnecessary documents frees up precious space in your file cabinet and on in your filing system on your hard drive.
Keep both a recycle bin and a shredding bin near your desk or wherever you pay bills or go through the mail. Review the financial documents on your hard drive. Get rid of out-of-date or unnecessary items. As an example, shred or delete monthly statements once you receive year-end summaries for your bank account or investment accounts. Shred anything with identifying information that you no longer need. Bill stubs, credit card solicitations, monthly checking account statements, even prescription drug labels contain identifying information. If you are ever in doubt, shred.
During your financial spring-cleaning, you will have a lot of paper and documents to recycle or shred. If you have a significant amount to shred, consider using a professional shredding service. A professional shredder is secure — you can watch them put your materials in a massive shredding machine. It is also beneficial for the environment because everything gets recycled. Professional shredding saves a lot of time and is not expensive. Some communities even have document destruction events that are free.
Security
Just as we are inundated with financial documents and marketing materials, the number of passwords we have—and need to keep track of—has exploded. Your passwords need to be secure. If you write them on a piece of paper, keep it out of sight and away from your computer. Think about using a passphrase that will be easy for you to remember. The longer a password or passphrase, the harder it is to crack.
Consider using a password management service, which stores your passwords securely in the cloud. You enter all your passwords into the service’s website. When you log in to a site, you enter a master password rather than your log-in and password for each website you visit. The sites will flag any of your passwords that are not secure and suggest you revise them. If you have a partner, a password management service can help you work together more successfully. If one partner changes a password in a hurry, the system saves it automatically.
The security of your passwords is a top priority. If you want to work with a password manager service, do your homework. Look at user reviews in the tech magazines. You could also ask someone in your IT department at work for a recommendation. Although it may seem like a big timesaver, never instruct your browser to save a password. It is not secure. If someone steals your laptop, it may be easier to access your accounts.
Technology
Advances in technology and mobile communication have changed the way we manage our finances. These innovations save time and allow us to be more informed consumers. But the innovations have also introduced new risks and exposures. With time, your financial accounts will grow, and so will the potential losses from identity theft and fraud.
Review your credit score and credit report regularly. You can download your free report and search for errors or indications of fraud at www.annualcreditreport.com. If you will not be in the market for a new loan soon, it is possible to freeze or lock your credit profile to reduce the chance of identity theft. You need to contact each of the three credit bureaus: Equifax, Experian, and TransUnion. Here is a link to learn more. https://www.consumer.ftc.gov/articles/0497-credit-freeze-faqs
If you receive a suspicious email, text, or voicemail regarding your credit card or bill payments, do not reply. Although the message may sound official, more often than not, it is a scam. Someone may contact you requesting answers to security questions or other private information to “verify” your identity. Turn over the card and call the credit card company customer service number on the back. Never provide information when replying to calls, emails, or texts that you receive, even if the person sounds legitimate.
Be careful about what information you share online. Never provide a financial services company more information than necessary. Most firms ask you to link accounts with other financial firms on their client portal. A firm may suggest that aggregating account information on their site will give you a more comprehensive view of your profile. There are security concerns associated with sharing your accounts and information on a firm’s website. Firms want to know as much about you as possible for marketing purposes. Some online financial management or personal budget tools may ask you to link your investment account to a site, which introduces some risk. These tools can help track your spending and automate savings plans, but it is unnecessary to link your investment account(s). Taking a holistic view of your investments is essential. Doing it offline is recommended. You can use a simple excel spreadsheet to track your investment account balances over time and update it periodically.
Given the amount of sensitive information traveling through your computer and mobile devices every day, you need to protect your data and limit access to it. Install updates regularly because they can provide the most current defense against viruses and malware. Although it is obvious—and good common sense—avoid using open networks. Access your financial accounts only from a secure network.
Taxes
Preparing your tax returns is not a fun task. It can be significantly less unpleasant if you are organized. Your taxes involve a lot of documents, and you must keep good records. In addition to your W-2 (or 1099-Misc forms, if you are a contractor), you will need supporting documentation related to your investment and savings accounts. A 1099 statement details the dividends, interest, and capital gains earned during the year. Some investments are structured as partnerships and provide a year-end, or annual, K-1 instead of a 1099. A K-1 shows an investor’s share of partnership income for a given year.
Transactions that you need to document at tax time occur throughout the year. Therefore, you should keep a Current Year Taxes folder. As you receive tax-related documents in the mail or from a financial firm’s portal, store them in this paper folder and keep a pdf version on your hard drive in a similarly labeled folder. If you are a contractor, save an extra copy of every invoice. You may need to remind a payer to send you your 1099-Misc after year-end. The Current Year Taxes folder is also a great place to track donations and any deductible expenses that you incur during the year. The IRS’s current policy for donations is that you need official documentation for all gifts greater than $250. Please make a note of all donations as you make them and save all acknowledgments and thank-you emails. You may not remember a January business expense or a contribution you made in May come tax time the next April.
Not only do you need to keep track of these items throughout the year, but you also must retain your tax files for some time. Keep returns and all supporting documents for seven years from the date that you file your taxes, not seven years from December 31st for a particular tax year.
The Power of an Orderly Home Office
Although it requires some effort to get organized, doing so helps you feel more engaged in your financial life. Having less to track and knowing how to find everything means you will waste less time and feel less overwhelmed. More important, you will be more knowledgeable regarding your personal affairs, leading to financial success.
