Tidying Up Queen Marie Kondo has taken the world by storm, helping people de-clutter their lives with a methodical approach. She says that we should “Keep only those things that speak to the heart, and discard items that no longer spark joy. Thank them for their service, then let them go.”
As you work through this tax season and begin thinking about financial spring cleaning, it’s a perfect time to apply some of Kondo’s advice, but with a twist: it’s time to make your financial life spark joy, not oy!
Here’s the “Schlesinger method” of tidying up your financial life.
Taxes: There has been a lot of moaning and groaning about the new tax law. If you owed money for 2018 or received a large tax refund, use the IRS withholding tax calculator on IRS.gov. After doing so, you may want to adjust your W-4 at work. If you’re self-employed, lower your quarterly estimated tax payments accordingly.
Investments: Tax time is also an opportunity to review your investments. Did your taxable accounts generate too much income or capital gains? Did you pay too much in fees? Are you sick and tired of managing the accounts yourself? If so, be sure to seek a financial professional or online platform that is held to the fiduciary standard at all times, meaning your best interests must come first.
Old accounts: Do you have orphan investment or bank accounts that need attention? By combining them, the resulting higher balance may help avoid or reduce fees and even help you get better deals, not to mention, it will help streamline your financial life. The same rule applies to old retirement or investment accounts that are looking for a home. Combining accounts makes it easier to monitor your entire portfolio and ensure that your money is properly diversified.
Fire Up the Shredder: Here’s where Kondo meets Schlesinger. Get rid of the paper, but understand what you must keep.
Tax returns/supporting documents: Generally, the IRS can include returns filed within the last three years in an audit. If they identify a substantial error, they may add additional years, but the agency usually does not go back more than the last six years. Therefore, keep your returns and all supporting documents for six years. (I hear you groaning!) If you work with a tax preparer, ask whether they will maintain electronic copies of all returns filed.
Bank and investment statements: If you manage your accounts online, find out for how long your bank/investment company makes your documents available. For those still receiving paper statements, keep them for one year and for taxable investment accounts, flag any confirms of purchases or sales for tax purposes. Hold onto records that are related to home improvements and major purchases until you dispose of the asset. (Note: If you think that you may be applying for Medicaid, many states require that you show five year’s worth of statements.)
Credit card bills: Unless you need to reference something for tax or business purposes, or for proof of purchase for a specific item, you can shred them after 45 days. Like the bank statements, flag what you may need for taxes, like charitable contributions.
Utility and phone bills: Shred them after you have paid them, unless they contain tax-deductible expenses.
Home improvement/Major purchases: Keep until you dispose of the asset.
Things you need to keep forever: In a fireproof safe, on the cloud or in a safe deposit box, retain birth and death certificates; Social Security cards; marriage licenses; divorce decrees and estate documents. If you have any question about whether or not to hang on to something, err on the side of being a hoarder.
Finally, please do not go crazy about your money. Just as Kondo encourages us to thank an item before discarding it, it’s important to be grateful for what you have in your financial life. When you catch yourself making a dumb mistake, make a change, and when you do so, celebrate the accomplishment!