Use Tax Time to Get Organized

February 2, 2012 1:16 am

For many Americans, tax season opens the door to an organizational nightmare as they sort through bank records, track down receipts, and figure out what financial information is needed and what can be discarded.

According to financial planner, Rick Rodgers, author of “The New Three-Legged Stool: A Tax Efficient Approach To Retirement Planning,” tax time is the perfect time to get organized and put a system in place for managing your finances moving forward. Here are five steps he recommends for a stress-free, streamlined financial life:

Know what to get rid of. Discard the records you no longer need, including: tax returns older than seven years; bank records and credit card statements that are not related to the tax returns you’re keeping; brokerage statements that aren’t related to purchases of current holdings. Of course, make sure such private documents are shredded before throwing them out.
Create digital files. Convert the documents you plan to save into digital images that are stored on your hard drive. Invest in a good scanner and scan as you go through your paperwork, shredding and tossing the hard copies. On your computer, file by tax year, so your 2011 folder will contain your tax return for 2011 and all pertinent bank records and receipts. Organize the previous six years the same way. Next year, you can delete the oldest folder when you add the 2012 folder.
Go paperless. Stop receiving paper statements from your financial institutions—they’d prefer to send you documents electronically, anyway. Instead, download your statements electronically and store them in your new filing system. Most banks and credit card companies keep at least a year’s worth of statements available. You need to download these files only once a year to complete the year’s file.
Back-up your files. Make backup copies of your files on CD. Choose a CD-R (recordable) as opposed to a CD-RW (rewriteable), because CD-R cannot accidentally be overwritten. Depending on your computer operating system, you may be able to continue adding data to a CD-R each year, until the CD is full. However, some operating systems won’t allow that, so you’ll need a new CD for each year.
Apply your new system to all critical documents. Your new electronic filing system can be expanded to include all your financial records, from car maintenance receipts to pay stubs. Wills and insurance policies can also be scanned and stored but, of course, keep the originals in a safe deposit box or fireproof safe.


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