When spring fever hits and you start tossing out old clothes and scrubbing the floors, don't forget to give your finances some fresh air, too. Here's an 11-step guide to a cleaner—and healthier—financial life:
1. Put papers in their proper place.
You're probably just wrapping up your taxes, which means it's the perfect time to establish some smarter paper-tracking habits. Regina Leeds, the "zen organizer" and author of One Year to an Organized Life, suggests setting up a file system to easily store receipts that pile up throughout the year. For example, you might want to have separate files for expenses related to your car, business, healthcare, and child care. (She adds that the super ambitious may want to set up an online system to eliminate the need for so much paper.) You'll also want a file for household expenses, related to maintenance or repair work, as well as income-related paperwork such as 1099s, says Leeds.
2. If you don't need it, toss it (or archive it).
You'll probably need to hang on to important documents (some states require taxpayers to keep up to 10 years of filings on hand), but much of your old paperwork belongs in the trash or the shredder if it has valuable information on it, such as bank account numbers. Store your most important documents, such as certificates, in an archival box or locked metal file cabinet that's separate from your day-to-day files, advises Leeds. "Every year, take a look at your archived files. You might be able to eliminate a few projects each year," she adds.
3. Go electronic, go green.
"Just about everything these days is online, so all the old rules about what you need to keep are changing," says Russell Wild, a fee-only financial planner in Allentown, Pa. Credit card statements, bills, paycheck records, investment account statements, and even tax paperwork can often be shifted online. "Just make sure you have access," says Wild, meaning a system for keeping track of all your passwords.
If you're still hooked on old-fashioned paper statements, try this: As soon as your first-quarter account statements arrive, shred the monthly statements for January and February, suggests Rita Cheng, a financial adviser with Ameriprise.
Your credit report deserves a little TLC, too. Get your free annual credit report at annualcreditreport.com to check for any errors and fix any mistakes that could be dragging down your score, Cheng says.
5. Pay it down.
If you're still carrying debt on credit cards, check their interest rates and balances and make a plan to pay them off. If you're due for a tax refund, consider using it to pay off that expensive debt. Or, use the extra money in your paycheck from the Social Security tax holiday, says Cheng.
"It's a great time to assess that status of your retirement savings," says Nathan Gendelman, director of investments at the Family Firm, a fee-only financial-planning firm in Bethesda, Md. Many retirement account plans allow employees to make catch-up contributions through April 17 of this year, for example. He says people should ask themselves if they can make IRA contributions and if they are maxing out their 401(k) or 403(b) plans.
7. File for flex dollars.
If you haven't finished your flex spending paperwork for 2010 for any outstanding healthcare expenses, you might have a few more days to do so, depending on your employer's policy. Make sure you don't leave any money in your 2011 account, because you'll lose it. Don't forget to read up on the latest flex spending rules: The IRS recently changed the rule regarding breast pumps, making them eligible for reimbursement through flex spending accounts, for example.
8. Review your relationship with Uncle Sam.
Gandelman says now is the perfect time to revisit whether or not you're withholding the correct amount from your paycheck, since taxes are still fresh on the mind. If you are set to receive a large refund, you might want to consider withholding less throughout the year to better manage your cash flow. Or, if you owed a lot to the IRS, perhaps you need to withhold more throughout the year. "Work on making saving a monthly objective rather than relying on the tax system to enforce a savings regimen on you," he says.