Spring Cleaning For Your Finances

With the official start of spring looming, perhaps it’s time for some spring cleaning of all those things we’ve been ignoring up until now. I’m not just talking about your home or your work space. Here are some financial areas of our lives that could probably use some spring cleaning too:

Your tax records

With tax season upon us as well, it’s a reminder of our own version of that overstuffed file cabinet in the corner that we’d rather not think about. (If you don’t know what I’m referring to, your spring cleaning may consist of starting such a file.) We know we probably don’t need all that paper but we’re afraid of getting rid of anything for fear that it will someday get us in trouble with the dreaded IRS.

What the IRS recommends

There are a few other exceptions to the 3 year rule. If you filed a claim for a credit or refund after filing your return, keep records for the later of 2 years after you paid the tax or the regular 3 years after you filed. Keep those records 7 years if you filed a claim for a loss from worthless securities or bad debt reduction.

Keep all employment tax records for 4 years after when the tax is due or is paid, whichever was later. Finally, keep records related to property until after the period of limitations runs out for the year in which you sell the property.

Confused? If you’ve sold some property, consider speaking with a tax professional about what to keep and for how long.

Don’t forget that taxes aren’t the only reason to keep some of these records. Make sure that they’re not needed by your insurance company or creditors before you throw them away. You might also want to keep receipts for warranty purposes.

Your credit report

We’ve all heard about the importance of checking our credit report for errors but how many of us actually take the few minutes to do it? Having errors on your report doesn’t just mean you could be paying higher interest rates and being disqualified for loans and apartments. You could also be paying higher insurance premiums and risk being disqualified for jobs.

How to check for errors

The first step is to request a copy of your credit report from each of the 3 bureaus (Equifax, TransUnion, and Experian) on annualcreditreport.com if you haven’t already done so in the last 12 months. That is the only official site, so don’t fall for a copycat. If you’ve been denied credit, you can also get a free copy of your report from the bureau used by the lender that denied you.

Correcting credit report errors

If you see any errors on any of the reports, you can dispute it by filling out the form that comes with your report, using an online dispute form, calling the bureau, or contacting the creditor to request that they update the bureau with the right information.

If you make a phone call, you might want to follow up with a letter. In any case, be sure to be specific as to what information is wrong and why. The bureau must then complete their investigation within 30 days and send you a new copy of your credit report.

Cleaning up items that aren’t errors

Sometimes it’s not just the inaccuracies that need to be cleaned up. Try to bring any recently delinquent accounts up to date. If you have old debts, you might want to get them paid off or settled as well, especially if you’re planning to buy a home or refinance your mortgage. Just be aware that even just contacting an old creditor can actually hurt your credit score by turning an old debt into a new debt since more recent debts count more towards your score.

Paying it off should improve your score after 2-6 months though, especially if you can get the creditor to report them as “paid-in-full” or “paid-as-agreed” rather than “settled” or “charged-off.” That being said, you may want to ignore those old debts if you can’t pay them off (making a partial payment without settling it may only hurt your credit score) and they’re past the statute of limitations to sue you in your state or you’re planning to file for bankruptcy.

Your accounts

If you’re like most people, you may have multiple bank and investment accounts all over the place. It can be hard for you to manage and keep track of and even harder for your loved ones in case something were to happen to you. There may be good reasons for this but if not, it could be time to do some consolidation.

Why consolidate?

In addition to making your life easier, consolidating bank and brokerage accounts can qualify you for lower fees, higher interest rates on your savings, and other perks. Don’t forget to shop around on sites like money-rates.com and depositaccounts.com to see if someone new can give you an even better deal than your existing institutions.

You may also have retirement plans floating around out there from previous jobs. Unless they offer you a unique investment option, you might want to roll them into an IRA or your current employer’s plan. An IRA can give you more flexibility in how you invest the money and how you withdraw it (unlike other plans, you can use it penalty-free for education expenses and a first-time home purchase).

On the other hand, rolling it into your employer’s plan would allow you to have all of your retirement money in one place and possibly the option to borrow from it tax and penalty free at any time and for any reason. Your plan may also offer you unique investment options and free advice on investing within the plan. Finally, if you retire after age 55, you can withdraw penalty-free from a 401(k) while you’d have to wait until age 59 1/2 with an IRA.

Taxes, credit reports, and financial accounts — none of these sound particularly exciting to most people, which is how we come to neglect them. But if you take some time now and do some spring cleaning in these areas, you may be surprised to see how liberating it feels to have a smaller and cleaner tax filing cabinet, a credit report that’s not keeping you down, and money that’s working as hard for you as it can. You can then sit back and relax, knowing that summer is right around the corner.