FDIC Consumer News - Summer 2018
25th Anniversary Edition
[2011] Strategies for Simplifying Your Financial Life
Excerpted from “Strategies for Simplifying Your Financial Life” and “Your Financial Records: What to Toss and When,” Winter 2010/2011.
There are many reasons to organize and simplify your financial life. Here’s one motivating factor: Not keeping tabs on your finances can be costly if it results in fees or interest charges you could have avoided, investment losses, additional taxes or other pitfalls. FDIC Consumer News offers a checklist of basic things you can do to get your money matters in order ... and keep them that way.
Automate recurring bills. Many merchants, such as insurance companies or utilities, will allow you to pay recurring bills with an automatic withdrawal from your checking account or through a charge to your credit card. However, be sure to record these transactions in your check register to avoid overdrawing your account. If you charge the bills to a credit card, pay the balance in full by the due date to avoid interest charges. Banks also offer online bill-paying services that allow you to pay bills quickly and easily. These programs generally allow you to sign up on your bank's website to receive bills electronically from companies you do business with. Then you can review the bill and pay it online. Unlike with automatic withdrawal, you control the payments online.
Explore online banking. This service lets you review deposits and withdrawals, keep track of your balance, move funds between accounts, and pay bills at your convenience. For example, with online banking you can quickly review your account and make sure you didn't forget to record any debit or ATM card transactions in your check register. You can get an update on whether funds from recent deposits are available for withdrawal.
Put some savings on autopilot. Arrange with your bank or employer to automatically transfer a certain amount into savings accounts or investments on a regular schedule.
Know what to toss and when. In very general terms, because the Internal Revenue Service has about six years to assess additional tax if you underreported your income by more than 25 percent, many tax advisors recommend holding all tax records for about seven years, building in extra time for any unforeseen delays in processing your return. With tax considerations in mind, here are suggestions that may be reasonable for many people:
- Save credit card and bank account statements with no tax significance for about a year, but those with tax significance should be saved for seven years.
- Canceled checks that are unrelated to anything you claimed on your income tax form and are not needed to show you've paid a bill or debt probably can be destroyed after you've verified that your bank statement is correct. But canceled checks that support your tax returns probably should be held for seven years. You may want to keep canceled checks and related receipts or documents for a home purchase or sale, renovations or other improvements to a property you own. Once the home has been sold and another seven years have passed, the checks can be destroyed.
- Save deposit, ATM, credit card and debit card receipts until the transaction appears on your statement and you've verified that the information is accurate. You may make an exception for receipts for expensive items. If they are under warranty or you have to file an insurance claim, the receipt may be helpful.
- Before tossing away any document that contains a Social Security number, bank account number or other personal information (especially financial information), shred it to avoid becoming a victim of identity theft.
For additional guidance, ask your accountant, attorney or another trusted advisor.