Seven Ways to Organize Your Financial Life

Do you know where all of your financial accounts are located? Do you have a list of your insurance policies? Can you easily gather your tax records? Do you know how much cash flow comes in and goes out? If you answered “no” to any of these questions, do not feel bad. I think most people have room for improvement when it comes to getting financially organized. Here are a few tips:

  1. Take control of your paper. Gather and file important paper documents (e.g., birth certificates, real estate title documents, automobile titles documents, Social Security cards, estate planning documents). Shred any unnecessary documents.
  2. Limit paper documents. If a scanned copy is acceptable for a particular document, scan it into your computer and shred the original. Choose e-delivery (instead of paper delivery by mail) of bills and statements whenever possible. Of course, backup your data on a regular basis.
  3. Make lists of financial accounts, insurance policies, and debts owed. These lists may be helpful to your family members in the event of an emergency. In addition, you might uncover accounts that you forgot about, insurance policies that are redundant or unnecessary, or loans that can be paid off.
  4. Consolidate your accounts. Do you have five 401(k) accounts from prior employers? Unless you need a particular feature of an old 401(k) plan, roll over your old 401(k) accounts into a IRA. Do you have accounts at multiple banks? Unless you need multiple banks to magnify your FDIC insurance coverage, consider consolidating your bank accounts into two banks: one local bank for your everyday checking account and one online bank that offers a savings account with a high interest rate. Do you have five credit cards? You get the picture…
  5. Automate your finances. Do you want to save 10% of your paycheck? Set up a recurring transfer from your checking account to your online savings account after every paycheck direct deposit. Consider automatically reinvesting mutual fund dividend and capital gain distributions (especially in tax-deferred or Roth accounts).
  6. Develop a financial planning calendar. See my article posted on April 22, 2013. You can use software like Microsoft Outlook or just manually create a calendar.
  7. Track your cash flow. This is probably the most time consuming recurring task on this list, but knowing your cash flow is crucial to meeting your financial goals. I think the best way to track your cash flow is to use software like Quicken. If tracking every minor cash expenditure is too tedious for you, then track everything else (e.g., bank, credit card, and investment transactions) and assign all cash withdrawals to a “cash expense” category. You should be able to answer questions like: Do you spend less than your earn? In what major categories do you spend your money?