While organizing just about anything in your life can become a daunting task, there are some that can truly change the way you live. The organization of your finances can help you and your family stay on budget, pay bills on time and do your taxes quickly, just to name a few. The professionals at Tax Group Center have learned a thing or two when it comes to organizing finances and we’d like to take some time to share a few tips.
Now the truth is, there really isn’t any “secret” to organizing your finances. You may find that the most difficult part is building up the courage to drag out that old shoe box or that dusty stack of papers in the corner. The rest of the organization of finances is all about a method to the madness.
The first thing you’re going to want to do is to create folders or stacks by category. Here is a list of recommended categories that we find to be effective:
- Tax returns
- Bank statements
- Income
- Personal
- Housing
- Transportation
- Medical
- Other
If you have printed copies of your tax returns from previous years filed, such as form 1040, this is a great piece to keep on file. Keeping track of how you filled out your previous tax return can help save you time and effort. However, keep in mind that tax laws regarding credits, for example, can change, not to mention your income and assets.
Bank statements are great for keeping track of your account balances, credit card history, money market accounts and more. It’s best if you can organize this category further by date, keeping the most current statement on top. For the purposes of applying for a tax resolution program such as the Offer in Compromise, you’ll only need bank statements for the last three months.
Income can be tracked by retaining copies of your pay checks/pay stubs. Again, for the purposes of applying for a tax resolution program, it is recommended that you keep copies of the last four consecutive pay stubs/pay checks.
The personal category applies to personal expenses such as grocery receipts and other types of personal care. Tracking your personal expenses will give you a better idea of how your money is being spent and from there, you can determine if you have room to cut back or increase your spending. Personal expenses are also factored in when determining the right tax resolution program.
Another important expense that may want to consider tracking is that of your housing. This would include a copy of your mortgage statement, utility bills, apartment contract, etc. If it’s related to your immediate living arrangement, include it in your housing section. Creating sub-sections for this may be necessary if you have several kinds of documents.
Transportation is another important expense we recommend you to file. You may want to create subfolders for gas/maintenance receipts, insurance or even public transportation tickets. The IRS uses National Standards when determining your transportation expenses for a tax resolution program. You can find out more by visiting www.irs.gov or call a Tax Group Center representative.
For the medical category, be sure to keep information on file regarding your health insurance and out of pocket medical costs. You may also find it useful to keep track of your hospital bills and pharmacy receipts. If you are seeking penalty abatement due to an illness or injury, the documents in your medical category will be used as proof in your case.
Finally, we have included everything else into one remaining category known as “other”. You may find that your unique financial situation calls for several additional categories as opposed to just one. The other category contains any other expenses and assets that you will need to access. Assets may include life insurance policies, mutual funds, stocks or 401(k). Expenses would be things like alimony, court ordered payments, or child support.
Now that you have all of your documents organized into categories, it’s time find something that will keep them all together. If it’s all you have, it’s okay to place them back in that old shoe box, just as long as you keep your documents separated by categories. You can do this using paper clips or separating sections with post-it notes. If you have some room or extra cash, it’s highly recommended that your purchase a small file cabinet or even just a 3 ring binder with dividers. You can even take your organization digital by entering your financial information into an Excel spreadsheet or other personal finance program.
