Financial Spring Cleaning

Thank you for joining us for financial spring cleaning. Get your financial house in order. Headquartered in Fort Lauderdale, Florida, our mission is to assist families throughout the United States and ending financial crisis, and solving money management problems through education and professional counseling. What we do is financial counseling, debt management services, financial education, and we are a HUD-approved housing counseling agency with pre purchased and post purchase counseling, foreclosure prevention, and reverse mortgage counseling.

When people hear spring-cleaning they only think of the clutter in their homes, but they also need to think of the clutter in their finances as well. Why do people spring clean? To see what they own, what they use or no longer use, to get rid of unnecessary junk perhaps, and how do they feel after?  Happy, at ease, they have peace of mind. This is how you can feel knowing that your finances are in order. There is a high price to pay for financial anxiety. Researchers found that people with a big part of their income tied up in credit-card bills and high debt have more heart attacks, sleeping disorders, explosive emotional outbursts, problems with smoking and being overweight, and then divorce.  It is a bad idea to avoid the issues. When it comes to finances, don’t bury your head in the sand because you refuse to admit that something is true and that there may be a problem, it will not go away on its own, but with time effort and discipline you can get your financial house in order.

In order to declutter your debt or mess, the first thing to do is get organized.  What are your goals, what is your net worth and what is your current financial situation?  To get started you need to assess the mess.  What debts do you have, who do you owe?  Start off with your credit card debt.  Go over your statements and ask yourself, why did you buy that, did I really need it, what am I doing?  Because you need to realize that if you are not able to pay off that bill in full at the end of the month, how much is this going to cost you.  Let’s try to clear out this credit card debt.  You have to assess the mess before you attack it.  Reflect on what it is that you are doing and how you got to your current situation.  Why are you spending so much, what changes can you make?  Next, list all of the other debts that you have, from mortgage loans, car loans, personal loans and any student loans.  Again, the only way to clear up your financial house is to know who and how much you owe, know your net worth and to be sure that you are banking with the right institution.

Now that you have gone through your credit card statements and listed all of your loans, you have a good idea of who and how much you owe.  The next thing to do would be to go over all of your assets.

In order to figure out your net worth, you need to gather some information.  Net worth is what is owned minus what is owed, so the value of all assets minus the total of all liabilities.  The reason you want to do this is because it helps you understand your current financial situation and gives you a reference point for measuring progress towards your goals.  From the previous slide, I discussed gathering all of your statements etc., to see who and how much you owe.  Now you want a list of your assets.  Assets can be real estate, valuables, investments and the money you have in the bank.

For example:

• Money in your bank accounts
• Value of your investment accounts
• Your car
• Market value of your home
• Business interests
• Personal property, such as jewelry, art, and furniture
• Cash value of any insurance policies

Once you have all of that, then you do the math and subtract your liabilities from what you have.  Just to reiterate liabilities are:

• Mortgage
• Car loan
• Credit card balance
• Student loans

If you need a hand with this, there are a lot of net worth calculators and worksheets available online.  You will either be in the positive or the negative. If your net worth is low or in the red (negative), you’ll need to work on saving more and spending less. To watch your progress, calculate your net worth now and recalculate it once or twice a year.

Many have the question………how long should I keep this?…..in regards to financial records and important documents.  Well let’s discuss that now.

Receipts – It all depends on how you paid and what you bought.  You can throw receipts away right away if you happen to pay cash for the item/s.  If you used a credit or debit card, then wait until your statement arrives so that you can verify that the charge is there and is correct.  Now if the receipt is for home improvement or a big ticket item, like a new fridge, then you will want to hold on to it for as long as you own the item.  Just in case you need it for warranty or insurance purposes, if something happens and you may also need them for tax purposes.  No if you bought something impulsively and may want to return it, then you will hold on to that receipt, at least until the return period is up.

Bank & Credit Card Statements – These are also docs that can be shredded once you have verified that the information in accurate.  Now, you will want to keep the ones related to y our taxes, business expenses and home improvements.  Good practice is 7 years for those.  Statements are also available online through your bank or credit card provider.  I know that I no longer get paper statements of any kind.  You can download those that you need and save to your computer or flash drive, etc..

Paycheck Stubs – A good rule of thumb would be to keep stubs for one year, until you get your W2 from your employer.  This way you can make sure they match, if not you would have to use the stubs for an amended tax return.

Mortgages and Other Loan Documents – Keep documents related to mortgages and other loans, such as car loans or student loans, until you have paid off the loan.  You may also keep these documents indefinitely in the event your are questioned about whether or not you paid them off.

Property Records – According to Bankrate.com, you will want to keep these records on hand for up to six years after you sell the home.  These records include all documents related to the purchase of the home, as well as records of any improvements you may have made, such as remodeling or additions.  It is important to keep a record of the expenses  you may have incurred in buying or selling your home, such as legal fees and commissions paid to real estate agents.  These type of expenses are included when calculating your capital gain, which is the profit from the sale of an asset.  If you would like to know more about capital gain and how it will affect your taxes, you should seek the advice of a reputable CPA.

Tax Documents – You will want to keep tax-related records for seven years.  The IRS can audit you for three years after you file your return if it suspects a good-faith error, and the IRS has six years to challenge your return if they think you underreported your gross income by 25 percent or more, according to Bankrate.com. A seven-year window should cover you in either event.

Brokerage Statements – It is good practice to hold on to your quarterly statements until you have received your annual one to make sure they match up.  Also, keep records of purchase and sales of securities in case you need to prove capital gains or losses at tax time.

Bills – You can shred most bills once the payment clears.  Now remember that if it is for a big ticket item (furniture, computers or jewelry), keep the bill as long as you have the item.  You never know if you will have to substantiate and insurance claim in the event of loss or damage and keeping the bill is proof of value.

Retirement Plan Statements – Keep your quarterly statements for one year and then you can shred them once you match them to your annual statement.  Keep the annual statements until you retire.

When it comes to keeping documents, if you can scan and save then do that.  Unless for some reason you need to keep the originals.  For example, some military organizations do not want copies, they want the original documents.  Even in that case you should still have a soft copy of those.  For originals, you will want to keep them some place safe, like a water and fire proof safe.  Another good practice is to back up all of those soft copies on a flash drive or external hard drive and keep that in the safe as well.

Where are you keeping  your money?  In a jar buried in the backyard, under your mattress or in a financial institution?  Where you keep your money is just as important as how you spend it.  Is your account loaded with fees and other charges?  Is it a high interest bearing account? Does it have the best value and convenience for you?  These are the questions that you need to ask yourself.  Are you with a traditional bank, credit union or online bank?

What is a bank? – A bank is an organization that receives deposits, honors checks drawn on those deposits, and pays interest on them. Banks also make loans and invest in securities. Banks make profits by charging a monthly fee for checking accounts containing less than a certain amount of money. Banks may also charge for bounced checks, paper banking statements, and using an ATM belonging to another bank.  They offer different types of accounts: checking, savings, money market or CD’s.  Banks make money by charging fees and earn income from securities and investments.  They are usually FDIC insured, so in case of robbery, it’s the bank’s loss and not yours.  When choosing a bank, there are some things to consider:

• The services you want. For example, are you looking for direct deposit of your paycheck, no-interest checking, or no-fee money orders? Do you want a higher interest rate on a savings account or investment options?
• ATM convenience. If you like to use an ATM to perform many of your transactions, can the bank meet your needs?
• Bank fees. Ask if there are ATM usage fees, overdraft protection fees, fees for going below the minimum balance, and bounced check fees.
• Online banking. Internet banking saves time. Simply dial into the bank’s computer using your own computer, or download information to your hard drive. This service may be free at some banks, while others may charge a fee for basic services. There sometimes is an additional fee for making online bill payments.
• Customer service. Visit banks you are considering. Are the employees helpful, courteous, and able to answer your questions?
• Insurance. Are bank deposits insured by the Federal Deposit Insurance Corporation (FDIC)?
• Location. Are there branches close to your home and work?
• We’ve touched on traditional banks, such as Wells Fargo, BofA, BB&T and TD Bank. Now I’m going to discuss Credit Unions.
• A credit union is an alternative to a bank. It is a cooperative financial institution that is owned and controlled by the people who use its services. The people who use a credit union are its members, and they have something in common such as where they work, live, or attend church.
• Because credit unions are not-for-profit, they provide more desirable rates and fees than banks. Although credit unions are for everyone, the law places some limits on the people they may serve. A credit union’s field of membership could be an employer, church, school, or community.
• Make sure any credit union you are considering is insured and offers the range of services you need. You can visit cuna.org to learn more about credit unions and to also search for them in your area.
• Because online banks don’t have the same kinds of overhead costs associated with building maintenance and staffing, they can pass the savings on to you in the form of higher rates—and usually lower fees, too. You’re likely to find that that annual percentage yields (APYs) on products like savings accounts and certificates of deposit (CDs) are consistently higher for online banks. Not all online banks are created equal. Make sure to ask if they implement security measures to provide a safe banking experience for their customers. They will include measures such as SSL encryption, firewalls, anti-virus protection, and multi-factor authentication, to name a few. But you want to be sure the online bank you choose stays on top of industry trends and goes the extra mile to protect your information.
• A good online bank will offer features like:
• Mobile banking options – think easy-to-use apps and mobile check deposit
• Account linking – to make transfers to and from your accounts as seamless as possible
• Fee free bill pay and direct deposit services
• ATM access – as applicable to your account
• Activity alerts – to help you monitor you accounts
• Having all (or most) of your bank accounts in one location can make it easier for you to keep track of your balances and stay organized. A good online bank will offer a solid range of all the bank products you use most. In addition to savings and checking accounts, online banks often offer a wide range of other bank products, like money market accounts, certificates of deposit (CDs), and individual retirement accounts (IRAs). Many online banks offer mortgage and auto loans, too. If you like the idea of consolidating your banking services, the best online bank for you will be one that has a diverse lineup of competitive products and services.  You can check out sites like bankrate.com  or nerdwallet.com for more information on online bank accounts.

Financial clutter can be cleaned up, and the payoffs, which include – lower banking costs, less risk of identity theft, better financial planning and an end to the chaos, are worth the time and effort.  Make an inventory of accounts and a balance sheet, and then figure out which ones can be consolidated, which you don’t use or even realize you still had, and make a plan to clear those up.  According to bankrate.com, people only need one or two bank accounts.  More than that means more paperwork, fees and perhaps ID theft.  Forgotten accounts can be declared abandoned and confiscated by the State.

To clean up your bank accounts:

• Make a list of the accounts.
• Research which offer the best services at the lowest cost.
• Stop or transfer any automatic deposits or payments on the less attractive accounts.
• Instruct the financial institutions to close those accounts.

To clean up credit card accounts:

• Make a list of your credit cards in order of the highest to lowest interest rate.
• Transfer balances from the highest rates to the lowest.
• Close the high-rate accounts.
• Make more-than-minimum payments on the low-rate accounts.
• Monitor the rates until the balances are paid off.

To get rid of 401(k) clutter, roll over old accounts to your new employer’s plan as soon as you’re eligible to do so. If your new employer doesn’t offer this benefit, roll over into an Individual Retirement Account, or IRA. Some banks will count an IRA toward a minimum balance that can earn reduced or waived fees on a checking account or other services. Rolling over an old 401(k) when you start a new job also can reduce the temptation to cash out your investments.

1. Organize yourself so that you can have a better view of your financial picture
2. Set a goal
3. Update your budget
4. Know how long to keep paperwork
5. Discard papers if you have electronic copies
6. Back up your electronic copies
7. Don’t throw away…..shred
8. Check out your bank accounts, if you are paying a lot of fees, then shop around for a new account
9. Check your credit/credit score
10. Make larger payments (if possible) towards debt

Now that you’ve assessed the mess, checked your net worth and gotten rid of unnecessary documents, you will have a better idea of what was working and what wasn’t.  This is where you sit down and reevaluate your goals, budget and savings plan.  If you didn’t achieve your financial goals for 2017, it is not to late to get started for 2018.  What is our plan of action for paying off and getting out of debt?  Are you going to tackle highest interest rate first or lowest balance?  When people hear spring cleaning, they only think of the clutter in their homes, but they also need to think of the clutter in their finances as well.  It was America Saves Week from Feb 26 thru March 3^rd.  How many of you have taken the pledge?  “ I, your name, pledge to save money, reduce debt and build wealth over time.  I will encourage my family and friends to do the same”.  I feel as though this pledge should be something that we live by everyday of the year.  How many of us have said we are going to do better, but after a few months, even after a few weeks have forgotten about what we were supposed to be doing. Print the pledge out and leave it where you can see it, and repeat it every day if necessary.  Now is the time for change, I have started my own financial spring cleaning and believe me, it’s eye-opening. Always remember, that being aware of your circumstances is essential to moving forward.

Please check out our website for interactive calculators, ask the expert tips, downloadable booklets and videos.

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