Do's and Don'ts for Organizing Your Financial Life

Note: This video is part of our “Get It Done” week on Morningstar.com: All week we will feature articles and videos offering guidance on ways to help tackle those nagging items on your financial to-do list.

Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. It's "Get It Done Week" here at Morningstar and if getting your life organized, your financial life organized at least, is on your to-do list, Morningstar's Christine Benz, our director of personal finance, has some "dos and don'ts" to share with us.

Christine, thanks for joining me.

Christine Benz: Jeremy, great to be here.

Glaser: So, let's start with your first "do," which is, just getting all of your financial information just written down and in a central location. Why is this important?

Benz: I'm a huge believer in this, Jeremy. It's sometimes something I call a master directory. And the basic idea is that you are going to amalgamate all of your major financial accounts, any financial intermediaries that you deal with--so bankers, financial advisors, tax preparers--that you amalgamate all of this information on to a single document, whether it's a physical document or some sort of an electronic document, it doesn't really matter. But just that you get all of this information into a central repository.

It can be a great resource if something happens to you, if you are incapacitated or otherwise unable to manage the financial assets for a while, your significant other or family members would be able to know roughly what you have. And I also think that this master directory makes a lot of sense because committing all of those financial accounts to paper can help you see, "Well, gosh, maybe I have too many IRAs that I need to collapse into one." You can see whether there are potentially some opportunities to streamline. And I also think that creating this sort of master directory provides a great entry point if you want to have a conversation with your spouse or an adult child who is savvy about financial matters, about where you stand and sort of the general contours of your financial plan. I think having such a directory is a great starting point for that discussion.

Glaser: But be it on paper or electronic, this is something you'd probably want to keep very secure.

Benz: Absolutely. So, if it's an electronic document, you must be working in a format where you can password-protect that document. And if you are working with a physical document, a paper document, you'd need to keep that in some sort of a locked file drawer or perhaps a safety deposit box.

Glaser: Do you think investors should consider putting even more information than just their bank accounts, their financial life in a document like this?

Benz: Well, one idea is to have sort of a central household document where perhaps you have the financial accounts and maybe financial liabilities, so if you have loans and credit cards and so forth, that's all in one document. Then maybe on another tab within the same document you might have a list of all of your doctors. So, I think it can be valuable to use some sort of a master directory to encompass more than just your financial accounts.

Glaser: So, your other next "do" is to go paperless. You think this can save a lot of hassle. Why is that?

Benz: Well, it can save a lot of hassle for sure. It can help prevent filing headaches, prevent having overly stuffed files, but it can also be valuable I think from an identity theft standpoint, from a security standpoint. The fewer items that you have passing through the mail, the less vulnerable you are to identity theft, to having some sort of financial fraud perpetrated upon you. It's not a guarantee that you won't be vulnerable in some fashion, but it certainly is a safeguard by going paperless with your financial accounts.

Glaser: So what are some of the steps to get started there?

Benz: Well, I think for people who haven't gone paperless before, one thing to think about is going through your major financial account providers whether it's your bank or your brokerage firm and getting yourself familiar with where you can retrieve these documents. I think that's kind of the first step, just to gain that comfort level with, yes, I can see my annual statement here; I can see my quarterly statement; I can retrieve prospectuses easily using the financial account provider's website. So, just get comfortable with where things are located. I think that's a good first step. Then signing up for electronic document delivery is obviously the next step. And certainly, if you haven't made that step into online bill paying, that's another part of this process. Here again, it can reduce the volume of paperwork that you're responsible for filing or shredding, and it can also reduce your vulnerability to any sort of financial fraud.

Glaser: How about receipts? How do you know what you need to save electronically or can possibly save electronically?

Benz: Receipts are a tremendous source of household financial clutter. So, increasingly, retailers are giving you the option to receive a receipt electronically. I think that that can make a lot of sense. Oftentimes, receipts can be devilishly difficult to track down when you need them. By knowing that they are going into your e-mail on your computer that is a great way to be able to keep track of them. You can then print them out if you need them or just maybe retrieve them on your phone. So, I think that keeping track of receipts electronically can make a lot of sense.

It's also worth noting a lot of folks save manuals associated with appliances, big and small. Increasingly, you can find those manuals online as well. So, I know that sometimes those can really stack up. Sometimes you've got manuals for things that are no longer working or no longer in your household. Knowing that you can find those online and maybe if you do find one for some appliance that you own, saving a PDF of that manual can make a lot of sense, right on your computer's hard drive.

Glaser: And for people with an HSA, a health savings account, it's also important to keep your medical receipts pretty well organized.

Benz: Absolutely. So the HSA does require that you're able to document any expenditures that you've made from that HSA account. So, you do need to hang on to those. It's also important to note that HSAs offer a pretty neat escape hatch. So, even if you have maybe pulled from your taxable account to cover your medical costs and are letting your HSA build up, if in future years you want to tap your HSA even for a non-healthcare-related expense, as long as you have receipts from prior years to justify the expenditure, you can go ahead and do that. So, it's very valuable to keep track of those healthcare-related expenditures if you are contributing to an HSA.

Glaser: And your final "do" is to potentially bring your partner into this planning process, make sure that they understand your organizational scheme.

Benz: Absolutely. So, I think we all have our ideas about what being organized means and the way that we might organize information, and it might not necessarily transport over to your partner. Or maybe you're relying on an adult child to help you with your financial matters. So, it is important to bring them onboard, show them where you are storing things. Certainly, if you have one of these master directories, let your trusted loved one know how and where they can gain access to that document if they need it.

Glaser: So, this will help you get organized, but one of your "don'ts" is you shouldn't overdo it, don't over-save. How do you know what you can safely throw out?

Benz: Anecdotally, this is a big area of trouble for people when it comes to financial clutter. Many people I know tend to over-save. They have things very well-organized. They've just saved too much stuff that they don't need to save. So, within that mutual fund file, for example, they've got proxy statements, they've got prospectuses, they've got things that aren't relevant to the investment anymore today and things that they could readily retrieve online. So, it is important, while we've talked about systems for getting yourself organized on a forward-looking basis, it's also important to look back on how you've done things in the past. Chances are your bulging files are filled with stuff that you don't need. So, a lot of those shareholder reports can readily be tossed. Really anything that isn't directly related to your tax return for the past seven years can readily be discarded unless it's one of the items that we've talked about, like some of the healthcare-related receipts. So, really take a discerning eye to your files; chances are you can find a lot of things that you can cull from those physical paper files.

Glaser: And our final "don't," when you do get rid of those, don't just throw them into the trash.

Benz: That's exactly right. Because old documents in particular had a tendency to include more personally identifying information than is the case today. So you might have account numbers for a bank account that you still have; you might have documents that have your Social Security number on them. We don't see a lot of documents these days that carry those very personally identifying bits of information, but certainly in the past there were a lot more documents like that floating around. So, you do need to take steps if you're getting rid of a bunch of financial paperwork. Most of it probably should be shredded. A lot of communities have sometimes days where they have a shredding day where you can bring bags full of shreddables to be shredded onsite usually in some sort of a truck where they do the shredding. Or you can, maybe for a fee, bring your shreddables to an office supply company. Some of the big ones offer shredding onsite as well. So, definitely, don't just toss these items in the recycling. Most of them will need to be shredded.

Glaser: Christine, thanks for your organization tips today.

Benz: Thank you, Jeremy.

Glaser: For Morningstar, I'm Jeremy Glaser. Thanks for watching.