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A Financial To-Do List for April

This is a great month to delve into your financial records and to create a master directory, which is perhaps your most important document.

Susan Dziubinski: Hi, I'm Susan Dziubinski with Morningstar. Morningstar's director of personal finance Christine Benz has created a month-by-month financial to-do list for 2021. She is here with us today to talk a little bit about what should be on that list for April.

Hi, Christine. Thanks for joining us today.

Christine Benz: Hi, Susan. Great to be here.

Dziubinski: You say that April is a really good time for us to get organized, specifically to focus on organizing our financial records. Why is April generally a good month for that?

Benz: Well, it's usually a time of year, Susan, when we are in the midst of tax season and now, I guess, we have the filing deadline pushed forward a little bit into May. But nonetheless, most of us are spending time with our financial records. We, I think, are cognizant of what the shortcomings of our recordkeeping systems might be. We might have spent more time than we wanted to trying to unearth the documents that we are looking for to file our tax return. So, I think it's a good time to think about getting organized when the pain of pulling your tax information together is still fresh.

Dziubinski: And you say one of the first steps we should be taking is taking a look at what sort of documents and records that our financial providers offer. What's the goal there?

Benz: Well, the goal is to see how and what type of records your financial providers are saving on your behalf. And chances are, if you deal with one of the big investment shops, you'll be surprised at the breadth of recordkeeping that they've been doing for you. And I think for a lot of us, it's a good impetus to go paperless, because it's more secure to not be having these financial documents passing through the mail. Ideally, you would receive them from your provider, that you'd retrieve them from your provider's website. Spend some time getting comfortable with what your provider has on offer and also make sure that your own security systems for your computer are up to snuff. So, if you'll be retrieving your records electronically, you want to make sure that all of your antivirus software is up to date and everything else that your computer is equipped to navigate and keep that information secure.

Dziubinski: What documents should we be saving? Whether we save that as a hard copy or we save that electronically?

Benz: Well, you'd want to be thinking about, first and foremost, very hard-to-replace documents, so your wedding certificates, birth certificates, articles of incorporation, things that would be a big pain to replace if you needed to. Those are things that you either want to keep in a safe-deposit box at a bank or in some sort of a fireproof box in your home where you keep it under a lock and key. Those would be the very hard-to-replace documents. Then for the other documents like your 1099s, for example, or your trade confirmations, I think it's reasonable to either rely on your provider to store those records for you, or you can maintain some backup records on your own computer, or maybe a combination for most people. The other stuff I would say, generally people oversave, so they save prospectuses and they save annual reports. None of that is essential. All of that can be readily retrieved in a pinch.

Dziubinski: What about tax documents? How long do we need to save our taxes?

Benz: Well, the answer is, it depends. And for most people, it's anywhere from three to seven years, depending on your situation. I would say for people who want to be safe, if you can save the past seven years' worth of tax returns that will cover you in any number of situations. It's probably just a good, better-safe-than-sorry sort of benchmark to use.

Dziubinski: And what about planning documents? People wrestle with where do I keep those? Where is the best place? What do you recommend?

Benz: Right. Estate-planning documents can really hang a lot of people up. There are a few different ways to go about this. One thing that people sometimes do is put them in a safe-deposit box. And that's fine if you take that next step of letting your executor or your close loved ones know where they can gain access to that information if they needed. So, a safe-deposit box maybe one option provided that you go that next step and give the party access to the box if they need to. You could also keep the estate-planning documents at your attorney's office. Some attorneys don't want the liability of holding those documents, but that's another option potentially for some people.

Another idea is to hand the documents over to your executor who will be handling your affairs, if needed. And so, the nice thing about doing that is that you can spend some time with your executor, with the person that you've granted powers of attorney to, going through some of the things, some of the considerations that went into your estate plan. If you decide to keep the document at home, you just want to make sure that you keep it in a safe place. You want to make sure that it's not readily accessible to others, but that your loved ones know where they can access it in a pinch.

Dziubinski: Speaking of estate-planning documents, you're a big believer in creating a master directory. In fact, you're such a big believer in it that you made it one of our to-dos for April. Can you tell us a little bit about what a master directory is and why it's so important?

Benz: Right. I'm a big believer in this document, Susan. And we have a template for creating a master directory on Morningstar.com that people can turn to. The basic idea is that it's a document that outlines the basic contours of your financial plan. So, you're giving information on what accounts you have and with which providers. You're providing detail on any financial professionals that you deal with, whether your CPA or your financial advisor or your estate-planning attorney. So, you're preparing that all in a document. And because you have a lot of sensitive information in this document, you have account numbers and so forth, you want to take that extra step of making that document safe, either encrypting it if it's an electronic document, or if it's a physical document, making sure that you have it under lock and key, either in your home fireproof box or in a safe-deposit box offsite. You have a lot of sensitive information here, so you really do want to make sure that it's secure.

Dziubinski: Well, Christine, thank you so much for your time today and for giving us some financial marching orders for April. We appreciate it.

Benz: Thank you, Susan.

Dziubinski: I'm Susan Dziubinski with Morningstar. Thank you for tuning in.