How to Organize Your Finances for the New Year

US News

The new year is approaching, which means goal-oriented people are already thinking about their resolutions for 2014. Throughout the country, in great numbers, consumers will soon be joining gyms, buying weight-loss books and swearing off vices.

Many people will also attempt to manage their money better in the new year. Specifically, to spend less and save more. So if you'd like 2014 to be a better year for your pocketbook than 2013, don't wait until Dec. 31 to start organizing your financial papers. Here are some strategies to get you rolling.

The basics. If you're going to get your finances in order, it's best to do it when you have some genuine distraction-free time, unless you're someone who thrives in chaos. So send everyone away, don't check your email, turn off your phone, clean your desk and locate your financial documents.

[See: 50 Smart Money Moves to Make Now.]

Budget. If you have a budget but haven't looked at it for a while, now is a good time to take another gander. Maybe you rarely use Netflix, Hulu Plus, HBO, Showtime or another entertainment subscription service, and it's time to ditch one or all of them. Maybe it's time to trade cable for satellite, or vice versa. A good rule of thumb for splitting up your budget goes as follows, according to Kevin Gallegos, vice president of Phoenix operations for Freedom Financial Network, a national company that aims to help consumers get out of deep debt:

-- Home expenses: 35 percent

-- Transportation expenses: 15 percent

-- Paying off debt, assuming you have any: No more than 15 percent

-- Savings: 10 percent

-- Miscellaneous: 25 percent

"These will vary by household," Gallegos says. "Someone who lives in the heart of San Francisco or Manhattan, for instance, may have a higher percent for the home category, but a lower allocation for transportation. An individual who lives in an outlying suburb might have a lower home percent, but higher transportation expenses if he or she commutes."

And as you would expect, there are a slew of websites and apps to help you organize your finances if you think better digitally than on paper (chances are, many of your statements come to you via email, anyway). Some popular options include mint.com, manilla.com and feedthepig.com.

If you're near retirement or taking the long view in your budget, check out retirement calculators. Some that have won awards and include a variety of features are BlackRock CoRI, the Vanguard Retirement Income Calculator, the MarketWatch Retirement Planner and T. Rowe Price's Retirement Income Calculator.

What to keep/what to junk. In the process of getting organized, you'll likely be parting with a lot of paper - but don't throw it all away.

Obviously, no formula fits everyone's situation. But the Internal Revenue Service suggests retaining tax records for at least seven years, and some tax experts suggest hanging onto your actual tax returns forever and just shredding or deleting the receipts and paperwork associated with returns older than seven years. When it comes to your home, however, you should keep any and all records, no matter how yellow the documents.

But feel safe throwing out receipts, including from the ATM and your credit card, as well as pay stubs and monthly bills if you no longer have use for them (i.e., you've checked them against your monthly statement).

Taxes. You can't claim to be financially organized if you don't have your taxes organized. Technically, nobody should be organizing their taxes at the end of the year, says Rick Davis, professor of accounting at Susquehanna University in Selinsgrove, Pa. Tax-related documents, like receipts or the mileage log you keep for deductions, should be maintained and organized every month, he says.

[See: Tax Tips: The Good, Bad and Ugly (But Legal).]

But if you're not in the mood for a lecture and just want to know how to get your act together now, Davis advises: "You should have a separate tax folder, divided into files by types of relevant items: income, charitable contributions, interest payments, tax payments, education expenses, et cetera."

Depending whether you're paid by an employer or you work for yourself, and whether you have a sprawling financial portfolio or just your 401(k), you may not have to spend a lot of time every month on your taxes - but checking in once in a while is a good idea.

Davis says you should also have a separate file for your tax returns from previous years, so if you don't, now's a good time to get that started. "Also, some items may need to be copied and put in other files," Davis says. "For example, education loan payments may result in a loan interest reduction. A copy of that should be in the tax folder, and a copy should be in your general loan folder."

Charity. Charity begins at home, they say, and often it begins in your overstuffed closet. If you search your home for unwanted items before the year is up, you can donate to charities like Goodwill or the Salvation Army and maximize your charitable deduction on your taxes (yes, taxes again), says Heidi Tribunella, a clinical associate professor of accounting at the University of Rochester in Rochester, N.Y.

[See: 10 Ways to Cut Your Spending This Week.]

And more proof that charity begins at home: You may want to give money to family members, says Jonathan Clements, director of financial education at Citi Personal Wealth Management. He points out that the annual gift-tax exclusion is $14,000, and if your pockets are deep enough, you can give that amount of money to as many family members as you want in 2013 without worrying about the federal gift tax. And, yes, we're back to taxes. Everything related to organizing your money, it seems, circles back to taxes.



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