Barbara O’Neill, Ph.D., CFP®
Extension Specialist in Financial Resource Management
Rutgers Cooperative Extension
"Spring cleaning" often involves clearing out clutter in the garage, donating unworn clothing and household goods, re-arranging photo albums and items in storage, and other decluttering and organizing tasks. This same process of organization and simplification can also be applied to personal finances.
People often feel a great sense of satisfaction and control when possessions and financial records are sorted, prioritized, and organized. Sorting and shredding documents is just the beginning step, however. Below is a list of nine additional small steps to "tidy up" your financial life:
- Create a Financial Inventory: List key financial data in one document including bank and brokerage accounts, insurance policies, credit card numbers, loans, names of financial advisors, and the location of important documents. A good template financial inventory form (PDF) was developed by the Vanguard investment company.
- Consolidate Financial Accounts: Prepare a net worth statement (PDF) (assets minus debts) and list all your financial assets. Many people have multiple brokerage and bank accounts, IRAs, insurance policies, and more. Identify assets to be consolidated. The objective is to consolidate similar assets to a minimum number of custodians.
- Close Financial Accounts: Eliminate and replace accounts that charge high fees and/or do not offer high interest rates. Another good candidate for closure is mutual funds with high expense ratios, often because they include pesky 12(b)(1) fees that are assessed for marketing expenses. Compare at least 3 account providers.
- Review and Update Beneficiary Designations: Identify financial assets that have a beneficiary designation including life insurance policies, IRAs, and tax-deferred retirement savings plans such as 401(k) and 403(b) plans. List them all in one place on this worksheet (PDF). Review your beneficiary designations and revise them as needed. Also be sure to list contingent beneficiaries in case your first beneficiary designee predeceases you.
- Review Automated Payments: Review recurring bill payments that are automatically deducted from financial accounts and cancel those for discretionary products and services that are no longer used. Common examples include gym memberships, Netflix fees, newspapers, "[X] of the month" clubs, and satellite radio fees.
- Calculate Your Net Worth: Make a list of everything that you own (assets) and everything that you owe (debts). Assets minus debts are your net worth (PDF). Update your net worth statement annually to keep track of balances owed to creditors, how much money you have, where you have it, and how it is doing.
- Purge and Shred Documents: Save year-end statements for financial accounts, such as mutual funds, and shred the monthly or quarterly statements that came before. Do the same for credit cards that provide an annual summary report. Save paper bank statements for up to a year or electronically. Retain tax records for up to 7 years in the event of an audit and records for capital assets (e.g., stock) as long as you hold them plus 7 years.
- Open Mail Immediately and Act on It Once: Sort mail related to personal finances into three categories: 1. Discard (e.g., advertisements and certain donation requests), 2. Pay soon or immediately, and 3. File for long-term reference. Avoid making piles of mail that require "revisiting" later and can result in late payments.
- Actively Solicit Price Quotes: Contact your insurance agent(s) and inquire about money-saving discounts on new or existing policies. Do the same with current or potential utility providers. For example, there may be a better cell phone plan that provides the service that you need for less or energy audits that can save money.
For additional information about tidying up your finances, review the University of Wisconsin Extension fact sheet Organizing Your Finances (PDF).