Spring clean your financial clutter; check your financial pulse, Robb recommends
Monday, May 11, 2015
Discarding unnecessary documents such as old utility bills is one way to clean up your finances, but there are other "cleaning" practices you should make an annual habit if you want to be financially fit, said Robb, who teaches in the School of Family Studies and Human Services.
This includes investing in your retirement, checking your credit report and updating critical life documents like your will.
"There are two big mistakes people tend to make with a retirement account, or a 401(k)," Robb said. "The first mistake is not opening up a retirement account as soon as possible. Many times people will put off the decisions — what to allocate, where to allocate, how much of their paycheck to invest — because those are hard decisions. But putting it off is always negative because it's costing you time and investment.
"The second common mistake is people will set up their account and not look at it again until they near retirement age," he said. "Every few years, you should review your allocations because as you near retirement, you should be adjusting those allocations into less risky investments."
Robb also suggests consolidating retirement accounts into a single 401(k), which you legally can do at no cost.
While you're checking on your retirement, check your credit report, which also is free through the website http://www.annualcreditreport.com. You have the option of checking the report from all three providers at one time annually, or staggering it and checking one provider every four months.
"There are three different major providers of credit report material and you have access to each one of these," Robb said. "Whichever option you take — getting all at once or staggering the reports — is up to your personal preference. However, it's important to always look at all three reports because each report is subject to different information. You might find one provider has an inaccuracy and the other doesn't. If you do find an inaccuracy, clear that up with the credit provider."
Have you gotten married in the last year or had kids? The financial planner suggested making sure your insurance lines up with your new lifestyle. And although it is uncomfortable, also use this time to create or update your will.
Once you get the big stuff out of the way, then it is time to throw away the clutter.
"The biggest thing to consider when deciding whether or not to throw out paperwork is if it could be critical to your tax filing," Robb said. "If it is part of your tax documentation, then you need to keep either the paper copy or make an electronic copy because tax documents need to be retained for seven years. That is the typical window when the Internal Revenue Service may choose to review your documentation. If you need to support anything in your taxes, you need seven years of documentation to be able to defend it."
If it isn't needed for taxes, you can toss it. Here are some documents that are OK to shred or dispose of securely:
- Monthly bank statements or statements past a year old; just keep the annual statement
- Paperwork for debts that have been paid
- Old leases or contracts that are no longer current.
- Monthly utility bills
If you don't feel comfortable disposing of these documents, Robb suggests scanning them and storing them electronically.
"Those documents can be stored in some other kind of safe cloud-based software such as Dropbox or a shared file storage, and then you know you will always have access to them," Robb said. "This is useful because those documents can be accessed in an emergency when the paper documents might have been destroyed or inaccessible."