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Step 3: Clearing out financial clutter

You may be anxious to get started, but it is hard to get motivated when you are knee-deep in paperwork. Getting your financial house organized is a great way to begin on your path toward financial wellness. But before you bulldoze that pile, you should know that some things are worth hanging on to. The key is to know what keep and what to toss. 

• Grocery receipts and other nondeductible expense receipts and statements can be destroyed after they have been recorded for budgeting purposes.
• Paycheck stubs should be checked against your W-2. If it’s a match, you can toss them. If not, request a revised W-2, called a W-2c.
• canceled checks should generally be saved for three years. Keep those related to your taxes and business expenses permanently.
• Utility bill stubs may be destroyed after recording, however, you may wish to hold onto these for a year to compare monthly costs. 
• Household documents pertaining to buying, selling or improving your home should be kept as long as you own the home.
• Receipts from major purchases should be kept as long as you have the item.
• Credit card receipts can be destroyed once you have reconciled with your monthly statement.  Additionally, credit card monthly statements can be destroyed on an annual basis.
• Individual tax return documents should be kept for seven years, according to the Internal Revenue Service (IRS). The IRS has three years from your filing date to audit your return if it suspects good faith errors. However, the IRS has six years to challenge your return if it thinks you underreported your gross income by 25 percent or more. 

Finally, before taking out the trash, be sure that all identifying information has been destroyed to avoid your personal information falling into the wrong hands. For more information about keeping your identity safe, read How to: Protect yourself from identity theft.

For more information on this topic, read Karen McCall's blog post on clearing out the clutter.

Step 4: Set yourself up for success

While all members should be aware of the family’s overall financial situation, choosing one person to conduct the day-to-day financial tasks is a good way to stay on top of things. The appointed individual should be organized and a good communicator. They should be given uninterrupted time to do their tasks effectively. 

Consider making the job of family CFO easier by establishing an online bill payment service (offered free-of-charge by many banks and credit unions). Even better, check with your creditors about setting up automatic bill payments. 

Designate a spot in your home for organizing financial paperwork. Used office supply stores offer great bargains on filing cabinets, or consider small plastic filing cabinets instead of metal or wood. If your goal is have a paperless filing system, make sure that you back-up your computer regularly and invest in a good security program to prevent criminals from obtaining sensitive information. To keep your most valuable documents safe, consider opening a safety-deposit box at your local bank or credit union.

For further reading, learn how to set yourself up for financial success from time management expert Marcia Francois.

Step 5: Get copies of your credit reports

Your credit reports can provide a snapshot of your overall financial situation. Reviewing your credit reports for accuracy can also help you to identify errors or fraudulent activity. Fortunately, it is easier than ever to obtain copies of your reports. 

The FACT Act gives every consumer the right to a free credit report every year from each of the three major credit bureaus: Equifax, Experian and TransUnion. To get your free report, simply fill out the request form. You can also visit www.annualcreditreport.com or call 877-322-8228.

The three major credit bureaus are separate entities. It is important to know this because the information in their reports may vary slightly. Different creditors use different reports (or a combination of them) to determine whether or not you are creditworthy.

Your creditworthiness matters most when you are trying to obtain credit. If your credit report indicates that you have maintained your credit well, you should have a good chance of receiving additional credit when needed, provided you have enough income to qualify for additional credit. 

Credit reports might also matter when renting an apartment, obtaining insurance or securing some types of employment. The Fair Credit Reporting Act (FCRA) dictates that credit information is accessible to others only for certain permissible purposes. For your protection, you are entitled by law to know who has received a copy of your report or inquired about it.