MoneyCounts: A Financial Literacy Series

MoneyCounts: A Financial Literacy Series

Spring Clean Financial Clutter

Dr. Daad RizkFinancial Literacy Coordinator


• Identify financial clutter.

• Learn why and how to clean financial clutter.

• Differentiate between permanent and temporary records.

• Use budgeting as a tool to clean financial clutter.

• Use tax forms to clean financial clutter.

Learning Objectives


Why Clean Financial Clutter?

Spring cleaning can clear clutter in your personal financial life just like it does for your closets and garage.

—Take control of your finances/budget.

—Simplify financial record’s keeping for year-end tax.

—Practice financial literacy skills:

• consolidate bank accounts

• use credit cards properly

• manage debt

—Reduce stress and save time in the long run.


Identify Financial Clutter

You can’t clean financial clutter if you don’t know what and where it is!

—Make a financial inventory list of:

• financial accounts

• credit cards

• assets

• debts

—Collect financial papers from all sources:

• Around the house, in the car, shoe boxes, etc.


Sort before You Shred

Sort financial records according to categories:

• monthly bills, pay stubs, bank statements • tax forms• retirement and investment documents• warranties and user manuals• policies and deeds• permanent records – birth certificate, passports,

will, marriage license, etc.


Buy a shredder and a large pizza! – Rule of thumb

• If you can get a copy of a document online for free, you do not need to keep it.

• For documents that you foresee needing for a purpose and cannot get copies online for free, keep as needed (bank statements and tax records to buy a home).

• Shred financial clutter at least once a year for the prior year!

– Daily items, cash receipts after you log in your budget, credit card receipts after you match to your monthly billing statement, etc.

• Know the difference between temporary records and permanent records.

– The need is short term or long term.

Shred or Keep?


Paycheck stubs• You can get rid of these once you have compared them to your W2 and your

Social Security earnings statement.

Utility bills • Throw out after one year, unless using them as a deduction for a home

office; then you need to keep them for three years after you’ve filed your tax returns.

Canceled checks • Throw out unless needed for tax purposes or can be retrieved online.

Bank statements • Throw out unless needed for tax purposes or can be retrieved online.

Quarterly investment statements • Hold onto these until you get your annual statement.

What to Keep for One Year


What to Keep for Three Years

Income tax returns • Keep in mind that you can be audited by the IRS for no reason, up to three years

after you filed a tax return. If you omit 25% of your gross income, that goes up to six years, and if you don’t file a tax return at all, there is no statute of limitations.

Medical bills and canceled insurance policies

Records of selling a house• needed for documentation for capital gains tax

Records of selling a stock• needed for documentation for capital gains tax

Receipts, canceled checks, and other documentation that support income or a deduction on your tax return

• keep for three years from the date the return was filed

Annual investment statement• keep for three years after you sell your investment


What to Keep for Seven Years

Records of satisfied loans• If you borrow private loans from banks or lending institutions

If you are a student and have federal student loans, what do you need to keep?

• Just because the Department of Education/Servicer has your student loan on file on NSLDS does not mean you should not keep your own copies of those documents.


Current or Active Documents

What to hold while active– contracts– insurance documents – Homeowner’s insurance and auto insurance policies until

new renewal arrives, then throw out– stock certificates– property records – including original settlement statement from when you

purchased the home, as it shows closing costs and settlement fees paid. These may be added to the cost basis calculation when you go to sell your home.

– stock records– records of pensions and retirement plans– property tax records disputed bills – keep until the dispute is resolved– home improvement records – hold for at least three years after the due date for

the tax return that includes the income or loss on the asset when it’s sold


Permanent Records

• tax returns – You may want to keep your tax returns indefinitely. The IRS destroys original 1040s after three years, but

you and your heirs may need information from the returns at some point in the future.

• marriage licenses• divorce or separation agreements• birth certificates• death certificates• Social Security cards• wills• living wills and advanced medical directives• trusts• estate documents• powers of attorney• deeds• records of paid mortgages


Receipts saved for budgeting purposes– grocery receipts– personal purchases – miscellaneous receipts

Receipts to support billing/monthly statements

– charges on credit cards– charges on debit cards– ATM withdrawals

Temporary Records


Home improvement records and cost basis• If you plan to sell your current home at any time in the future and you have made

home improvements that add to the value of your home, you should keep all your sales receipts for items purchased for the improvement (like a sink and the hardware to install the sink), credit card statements showing purchases if no receipt, and checks to contractors. When you go to sell your home, you will need to establish a cost basis, which is the original cost of the property, plus any improvements made by you, the owner. You will want to keep these records for at least three years after the due date for the tax return year in which you sold your home.

• Improvements can be items such as:• remodeling the interior of the home• new roof or deck• installing utilities on a building lot (new well or septic)• numerous other improvements performed by the owner; see IRS.gov for

more details

Home Improvement


Review Tax Withholding

Spring is the time to review your W4 with your employer to adjust for the tax year.

– Check the calculator at www.irs.gov.– Set up files for your tax-related documents.– Review new withholding by the IRS to prepare

yourself for the next tax year.– Use 1040 and supporting schedules to organize your

financial documents.


Use 1040 tax form and supporting documents to help organize your financial records.www.irs.gov/pub/irs-pdf/f1040.pdf

– Income – Adjustments to Income (AGI)– Taxes and Credits

Tax Forms – 1040 and SD


Schedule A (Itemized Deductions)

Allowable deductions for taxpayers:– medical and dental expenses– taxes you paid– interest you paid– gifts to charity– casualty and theft losses– job expenses– other miscellaneous deductions

www.irs.gov/pub/irs-pdf/f1040sa.pdf


Review Bank Accounts

You do not need more than one or two bank accounts (checking and savings).

– Review your bank accounts; consolidate, and close unused accounts.

– Numerous accounts mean more fees, paperwork, and risk of identity theft.

– Open a savings account if you do not have one!


Review Investments

Consolidate brokerage accounts to reduce clutter:– As with bank accounts, brokerage accounts can be consolidated to

reduce financial clutter in our lives.

– Take inventory and review what types of brokerage accounts you have, because only accounts of the same type can be combined.

• For example, the contents of a trust account can only be combined with the contents of another trust account having the exact same account title. Or, for example, a Roth IRA account can only be combined with another Roth IRA account having the same account owner.

– After streamlining brokerage accounts, a typical couple may have one trust or joint account, two IRA accounts (one each), and two Roth IRA accounts (one each). As with the 401(k) rollovers above, consolidating brokerage accounts makes it easier to properly manage your investments.

– Rethink bad investments.


Make a list of all credit cards:– Sort by interest rate and annual fees.

– Choose two or three cards that you want to keep.

– Transfer balances to these cards and shred the others.

• Make a decision if you want to keep those cards open or close them by customer request (review pros and cons).

– Make a plan to pay credit cards debt in full and on time each month.

Get your free credit report:– www.annualfreecreditreport.com

– Experian, TransUnion, Equifax

Review Credit Cards and Reports


Health, Life, and Disability Insurance and Coverage

– Review beneficiary designations; review your life situation.

– Consider family situation, age, gender, retirement plans.

Car Insurance– Start with state standard and build your comfort zone

coverage.

Home/Renter Insurance– Start with lending institution standard and build your

comfort zone coverage.

Review Insurance


401K plan and various employment retirement plans

– Review beneficiary designations.

Roth IRA

Traditional IRA

Consider tax saving and tax implication

Review Retirement


Purge, merge, and back up:– A good filing system (paper or electronic) is crucial.

• Save information for tax purposes and for long-run financial need (mortgage, loans, etc.)

• Designate a drawer or cabinet for all paper financial records.

• Designate a space on a computer drive for electronic information – back up computer system.

• Sort by date, most current on top.

– Clean out your wallet and purse.

• Review what you are carrying in your wallet and purse.

• Make copies of your cards (front and back) and keep in a safe deposit box.

• Protect against identity theft.

– Revisit your budget and rework as necessary!

Strategies for Success


Financial Inventory List


Budgeting List


Comments and Questions

Thank You!

Dr. Daad Rizk301 Outreach Building

University Park PA [email protected]

MoneyCounts: A Financial Literacy Series

Documents

financial literacy seriesbuy

financial literacy seriessort

financial literacy serieswhat

sort financial records

financial inventory

personal financial life

tax records

tax purposes