Monday, April 26, 2010

Spring Cleaning for your Finances

Tax season has come and gone and spring is here in full force. During these transitional weeks many people take on extra spring-cleaning duties. However, in addition to cleaning out your garage, or spending hours getting your yard ready for a huge pool party, I recommend taking a few minutes to clean up your finances.

Clean out your Filing Cabinet

The IRS recommends you keep copies of all tax returns, however additional tax related documents – such as W-2s, 1099s, and receipts – do not need to be kept more then a few years. You can clear up some room in your filing cabinet by shredding any documents that do not need to be kept. You should also think about getting rid of any documents that can be replaced such as credit card and bank statements you still have from previous years.

Review your Credit Report

All taxpayers are allowed one free credit report per year. While doing your spring cleaning it is a good idea to request a copy of your credit report to make sure there are no mistakes or unfamiliar activity. It is better to address these issues sooner then later and if you have not reviewed your credit report recently, I highly recommend doing so as soon as possible.

Create a Plan for your Debts

Debt is a serious problem for millions of Americans, but it does not have to be. By taking the time to establish a plan to deal with your debt, you will see that it does not have to ruin your life. Start paying off credit cards with the highest interest rates, and if your debt is seriously out of control you might want to consider a debt settlement program.

Consolidate Accounts

If you have more than one banking account then you might want to spend some time consolidating your accounts. Unless you have a banking account for your business you probably do not need multiple checking and savings accounts. It can be very difficult to manage your money, and plan a path to get out of debt when you have dozens of bank statements to review. However, by consolidating your accounts you can keep better track of your finances, and depending on where you do your banking you can take advantage of additional features such as online bill payments.

Track your Spending and Start a Money Calendar

If you find yourself scratching your head at the end of every month wondering where all of your money went then you might want to track your spending a little better. Keep a receipt from every purchase you make, and after a few weeks you should have a pretty good idea of where your money is going. It can also be helpful to create a money calendar listing days that you get paid, and due dates for important bills.

Automatic Savings

Most banks will allow you to setup automatic transfers to your savings account, and this can be a great way to help build up an emergency savings. Even if it is only a $10 or $20 reoccurring transfer it can still help you get in the habit of saving money for a rainy day. Just make sure that your savings account is not charging a high monthly fee.

Prepare for Next Tax Season

It is never too early to begin preparing for next tax season. By keeping a close eye on your tax liability, credits, and deductions, you can avoid having to owe the IRS next April. It is also a good idea to create a new folder in your filing cabinet so that you can keep all of your tax related documents in one safe place. Finally, you might want to adjust your withholdings if you substantially over or underpaid on your taxes last year.

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