Imagine for a moment that asking someone how much money he or she has isn’t a rude question. I’m springing it on you: How much do you have? Can you give an accurate answer? If not, you’re definitely not alone. But if you want to be among the fiscally responsible crowd cruising toward their financial goals, then you have some work to do.
Before you can begin creating the all-important financial plan, you need an accurate picture of your current financial situation. This means knowing exactly how much money you have and where it is located, including everything from 401(k) accounts to insurance policies.
So take a deep breath, and - if you are like many people - let the scavenger hunt begin! Reach under your bed or into your closet for the miscellaneous boxes of bank and insurance statements that have been “tucked away for safekeeping.” Once you’ve collected everything, sit down with your resulting stack of paperwork and get started.
For some individuals, this task leaves them pleasantly surprised. For others, the realizations are the opposite. Regardless of which category you fall into, knowing how much money you have is the first step to achieving your financial goals.
Now that you have an accurate picture of your current situation, the next step is to establish a system that will keep you organized as you go forward. A number of tools - both high and low tech - can assist you with this task.
A helpful, extremely low-tech tool that I employ with both my personal finances and my clients’ finances is my practical color-coded folder system. Simply purchase file folders in a range of colors, assigning a different color for standard categories including income taxes, retirement investments, Social Security, credit cards, wills, household accounts, insurance, miscellaneous debt, checking and savings, and investments.
What should you store in these folders? Let’s start with income taxes. Keep your tax returns as well as your W-2s and 1099s, etc. And don’t toss them out for at least seven years in case you are audited.
As for your retirement investments folder, file all statements related to your IRA and 401(k) accounts. Under Social Security, store your most recent Social Security statements. In your credit card folder, place all of your monthly credit card statements.
While many of these folders are self-explanatory, including the one labeled wills, one thing you may not automatically think to include along with a copy of your will is the contact information for the lawyer who set it up for you. Similarly, with household accounts, place the title to your house, or your lease agreement if you rent, but remember to include any receipts related to home improvement projects as well.
Your insurance folder should be subdivided and include policy and payment information on every type of insurance you have, while the catch-all miscellaneous debt folder should house all documents for everything from car and personal loans to student loans.
Under checking and savings, simply file each of your monthly statements. Under investments, make sure you file all the statements you receive for each individual investment.
Once your folder system is in place, pat yourself on the back for laying the groundwork to achieve your financial goals. In closing, I must stress that this system works as long as you use it, and avoid regressing to the random pack-rat system of file-keeping! ■
Kathy B. Paal, MBA, CFP, RFC, CTFA
Ms. Paal is a certified financial planner at Heritage Financial Consultants in Lutherville, Md., and is an investment advisor representative, registered representative, and licensed insurance broker with Lincoln Financial Advisors Corporation, a registered investment advisor and broker-dealer (1300 York Road, Lutherville, MD, 410-339-6675). You may email Kathy at [email protected].
