Financial Spring Cleaning

Ah, spring is here. It’s time for the weather to get warmer, time for the flowers to bloom and time for you to file your tax returns.

Once you’ve filed, you’ll be ready to toss those paper records as part of your spring cleaning routine, right? If you don't know what you should keep or shred, GreenPath offers tips to help you clear away the clutter.

What to Keep 

• Keep your income tax returns and supporting documents for a minimum of three years. If you’re self-employed, keep supporting tax documents for six years. Once the time elapses, shred them.
  
  “Place back tax returns in a locked file cabinet or safe,” says Dorothy Barrick, GreenPath financial counselor. “If that is not an option, use a permanent marker to block sensitive information like social security numbers or account numbers. You don’t want old tax returns to fall into the wrong hands. Don’t risk becoming a victim of identity theft.” 

• Save year-end investment statements for at least three years. Hold onto quarterly statements until you receive your annual statements and have confirmed that the numbers match. Be sure to keep records that show the initial purchase price for stocks and mutual funds so you can calculate your basis when you sell them.

• Keep records pertaining to your house as long as you live in it. Records showing your purchase price, and what you spent on improvements, may help when trying to prove the value of your home to potential buyers. After selling, keep documents for three years.

• Hold onto records showing how much money went into and came out of Individual Retirement Arrangements (IRAs) and 401(k)s – especially if you’ve made any nondeductible contributions – so you don’t overpay taxes when you withdraw the money.

• Keeping bank records helps you track your spending, create budgets and provide proof of payment when needed. Keep bank statements and cancelled checks for one year unless you are using them for tax purposes, then keep them for three years.

• If you have loans and certificates of deposit, store the original documentation somewhere safe and keep the most current statements. When loans are paid off, or accounts are closed, shred the records.

• Hold onto sales receipts until the product warranty or the return/exchange period expires. If you need sales receipts for tax purposes, keep them for three years.

• Keep paid medical bills for one year so that you can see if they qualify for a deduction on your tax forms. Typically, medical and dental expenses exceeding 7.5 percent of your income qualify. Check IRS Publication 502 at www.irs.gov for more information.

What to Toss

• Banking receipts such as ATM receipts, bank withdrawal and deposit slips, debit and credit card receipts can go through the shredder, after you’ve checked them against your monthly statements.

• Keep paycheck stubs only until you receive your Form W-2 at the end of the year, then shred them. 

• You can get rid of paper copies of most monthly bills – for things like credit cards, utilities and cable TV – unless you need them for tax purposes, then keep them for three years.

Getting rid of financial clutter from your life will help keep your financial path clear. Don’t forget to revisit your filing system from time to time. Having an occasional "shred fest" is as good for your spirit as it is for the integrity of your record-keeping system. For information on keeping good records, check IRS Publication 552 at www.irs.gov. 

Take the Debt Free Pledge

GreenPath Debt Solutions, in cooperation with the National Foundation for Credit Counseling, is taking part in the 2011 “Pledge to Be Debt Free” campaign during Financial Literacy month in April.

Benefits to Becoming Debt Free

• You’ll feel as though you got a raise. All the money that was going toward debt repayment is now yours to use as you see fit.  

• With the extra money, you can begin or add to a savings account. This will allow you to establish an emergency fund and save toward your goals.  

• You’ll have money to invest.  

• You can stop paying interest on your debt, and instead put the money to work earning interest for you.  

• Your credit report and credit score will improve, putting you in a better position to receive preferred rates if you need to borrow money in the future. 

• Your insurance premiums could decrease since rates can be based on credit-worthiness.

• You can answer the phone and get the mail without the dread of collection notices. 

• You’ll be in a better financial position if you were to lose your job.

• You’ll sleep better, be a better spouse, parent and employee, all because you’ve removed the cloud of debt that previously was your constant companion.

Tips to Becoming Debt Free

If you’re considering taking the debt free pledge but need help getting started, the National Foundation for Credit Counseling offers the following tips. If you are currently on a debt management plan with GreenPath, you are already on your journey toward financial freedom.

Getting Started – The Basics: 

• Know where you stand. Start by getting your credit report free of charge at www.AnnualCreditReport.com. Review it for accuracy, and dispute any errors.  

• Order your credit score. It’ll be fun to watch your score go up as your debt goes down. 

• Set your debt-free date. Use an online calculator to see how long it will take you to become debt free at your current pace. Then, plug in your debt-free date to see how much money you will need to dedicate to debt repayment to meet your goal.  

• Become financially organized. Put all bills, bank statements, and financial papers in one location. Commit to visiting your financial center at least once per week or reviewing your account balances online. 

• Create a cash-flow calendar by writing down the date of each paycheck and the bills that are due to be paid out of that check. 

• Set up automatic bill pay so that you’re never late paying a bill.  

Turning Your Goals into a Reality:

• Find hidden money in your budget by tracking your spending for 30 days.

• Create a realistic spending plan which includes all living expenses, debt obligations and money for emergencies.  

• Involve the entire family in decisions so that everyone is pulling in the same direction.

• Tighten the budget belt by omitting or reducing any optional spending.

• Remove all credit cards from your wallet. More plastic equals more temptation.

• Stop charging and begin paying with cash or a debit card.

• Get a part-time job and dedicate all earned income to debt repayment.

• Take the Debt Free Pledge!