MoneyCounts:
A Financial Literacy Series
Spring Clean Financial Clutter
Dr. Daad Rizk
Financial Literacy Coordinator
Learning Objectives
• 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.
MoneyCounts: A Financial Literacy Series
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.
MoneyCounts: A Financial Literacy Series
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.
MoneyCounts: A Financial Literacy Series
Sort before You Shred
Sort financial records according to
categories:
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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.
MoneyCounts: A Financial Literacy Series
Shred or Keep?
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.
MoneyCounts: A Financial Literacy Series
What to Keep for One Year
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.
MoneyCounts: A Financial Literacy Series
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
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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
MoneyCounts: A Financial Literacy Series
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.
MoneyCounts: A Financial Literacy Series
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
MoneyCounts: A Financial Literacy Series
Permanent Records
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tax returns
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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
MoneyCounts: A Financial Literacy Series
Temporary Records
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
MoneyCounts: A Financial Literacy Series
Home Improvement
Home improvement records and cost basis
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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
MoneyCounts: A Financial Literacy Series
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.
MoneyCounts: A Financial Literacy Series
Tax Forms – 1040 and SD
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
MoneyCounts: A Financial Literacy Series
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
MoneyCounts: A Financial Literacy Series
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!
MoneyCounts: A Financial Literacy Series
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.
MoneyCounts: A Financial Literacy Series
Review Credit Cards and Reports
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
MoneyCounts: A Financial Literacy Series
Review Insurance
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.
MoneyCounts: A Financial Literacy Series
Review Retirement
401K plan and various employment
retirement plans
– Review beneficiary designations.
Roth IRA
Traditional IRA
Consider tax saving and tax implication
MoneyCounts: A Financial Literacy Series
Strategies for Success
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!
MoneyCounts: A Financial Literacy Series
Financial Inventory List
MoneyCounts: A Financial Literacy Series
Budgeting List
MoneyCounts: A Financial Literacy Series
MoneyCounts:
A Financial Literacy Series
Comments and Questions
Thank You!
Dr. Daad Rizk
301 Outreach Building
University Park PA 16802
dar39@psu.edu
814-863-0214