Written by: Paul Gydosh
Date: September 11, 2015
Editor’s Note: Paul Gydosh is managing director at Kensington Wealth Partners, a sponsor of Next Avenue CBus.
We all have a closet, storage space or garage with “stuff.” Sometimes it’s just easier to close the door and not deal with the clutter. While your financial clutter may not be as visible as what is in your closet, garage or basement, it can cause major issues. From multiple bank accounts and credit cards, to old 401(k)s and family heirlooms and collectibles, financial clutter can be a stress both financially and personally.
Fortunately, with some effort, financial clutter can be cleaned up without the manual labor that it takes to clean out your storage space or garage! And the payoffs – lower banking costs, less risk of identity theft, better financial planning, and organized finances – are well-worth it.
Here are steps you can take to get rid of financial clutter.
- Make a list of your financial accounts, including all assets and debts.
You can’t organize your finances until you know what you’re working with. During this step, it is helpful to sort financial paperwork by category and year. Routine household bill statements may be shredded after one year. You should hold onto tax information for seven years, and be sure to keep retirement, investment and home records indefinitely. Also, it’s best to move deposit securities and other negotiable instruments into a bank or brokerage account or keep them in a safe-deposit box – all for safekeeping.
- Consolidate bank accounts.
If you found you have multiple bank accounts during your audit, consider consolidating. Most people only need one or two bank accounts. Before you close an account, do research to make sure the account that you keep open offers the best services at the lowest cost. This is also a great time to make sure the titling of the account fits your current situation and family transfer goals. Make sure you have internet access to the primary account.
- Get rid of unused credit cards.
Be sure to payoff or transfer balances from the highest rate to the lowest rate credit cards.
- Roll over old 401(k) accounts & consolidate small accounts.
Take a look to see if you have old 401(k)s. Employees who change jobs often leave a trail of retirement accounts. Sometimes you can roll an old account into your new employer’s plan, or you may need to roll over into an Individual Retirement Account, or IRA. Rolling over an old 401(k) when you start a new job also can reduce the temptation to cash out your investments.
- Insure family heirlooms and collectibles.
If you have family heirlooms and collectibles, these should be cataloged and insured as part of the financial clutter clean-up. If a collectible has a high investment value, you might want to convert into cash. It may save your children or executor from having to do the same under duress. The money may be used to pay off debts, buy other assets, or gifts to heirs while you are around to enjoy it.