Cleanup is worth the effort
Financial clutter isn’t as visible as an inaccessible garage full of stuff. But a multitude of bank accounts, credit cards,
Fortunately, financial clutter can be cleaned up, and the payoffs — lower banking costs, less risk of identity theft, better financial planning and an end to the chaos — are well-worth the time and effort.
“This takes work,” says Conrad Ciccotello, director of personal planning programs at Georgia State University in Atlanta. “It takes real energy to reverse the disorder. If you don’t do it, it becomes more cluttered. If you’ve moved the system to a higher state of order, you’ll look at differently because you know if you let it go again, it’s going to take a lot of work to clean it up.”
Here are seven steps to get your financial clutter in order.
Identify financial clutter
You can’t clean up financial clutter if you don’t know where it is. That’s why the first step is to make a list of all your financial accounts, credit cards, and other assets and debts. This balance sheet, of sorts, shows what you own and what you owe and can help you figure out what you don’t need.
“Set up a foundation that establishes where you are: Make an inventory of accounts and a balance sheet, and then say, ‘These can be consolidated. These are redundant. I don’t use these. I didn’t realize I had that,'” Ciccotello says.
Consolidate bank accounts
Most people need only one or two bank accounts, perhaps one at a national or regional bank and another at a regional bank or credit union, says Ronit Rogoszinski, a wealth advisor at Arch Financial Group in Long Island, N.Y. More accounts mean only more paperwork, fees and exposure to identity theft. Forgotten accounts can be declared abandoned and confiscated by the state.
To clean up your bank accounts:
- Make a list of the accounts.
- Research which offer the best services at the lowest cost.
- Stop or transfer any automatic deposits or payments on the less attractive accounts.
- Instruct the financial institutions to close those accounts.
“A lot of banks have decreased overdraft protection or eliminated it, so you want to maintain that relationship with a bank that lets you maintain that line. Even if you don’t need it, you want to hang onto it because getting that today is very hard,” Rogoszinski says.
Get rid of credit cards
Closing credit accounts can hurt your credit score. But your score shouldn’t be the only consideration in whether to close accounts you don’t need. Use a few major credit cards responsibly and close other accounts to free yourself from paperwork, advertising catalogs, identity-theft risk and the temptation to overspend.
To clean up the clutter:
- Make a list of your credit cards in order of the highest to lowest interest rate.
- Transfer balances from the highest rates to the lowest.
- Close the high-rate accounts.
- Make more-than-minimum payments on the low-rate accounts.
- Monitor the rates until the balances are paid off.
Don’t be deterred by the stumbling blocks and special offers that credit card companies use to prevent account closures. Instead, “hold on, be persistent, ask for written confirmation that the account has been closed and then follow up and look for the closed account on your credit report,” Ciccotello says. Repeat this line — offered by Rogoszinski — as many times as necessary to get the result you want: “Thank you, but I need to close this account.”
Roll over 401(k) accounts
Employees who change jobs often leave a trail of retirement accounts in the care of their former employers. As those accounts proliferate, it becomes difficult to manage the investments, and if a plan is transferred to a new manager, the assets may go missing or the investment choices may be very limited.
To get rid of 401(k) clutter, roll over old accounts to your new employer’s plan as soon as you’re eligible to do so. If your new employer doesn’t offer this benefit, roll over into an Individual Retirement Account, or IRA. Some banks will count an IRA toward a minimum balance that can earn reduced or waived fees on a checking account or other services. Rolling over an old 401(k) when you start a new job also can reduce the temptation to cash out your investments.
“My philosophy is when you leave an employer, you take what’s yours with you,” Rogoszinski says.
Deposit negotiable instruments
Some people like to keep stock certificates, government savings bonds, uncashed checks and the like in hand because having the actual documents gives them a sense of financial security. The downside is that these documents are at risk of being misplaced, damaged or destroyed. To create more order, deposit securities and other negotiable instruments into a bank or brokerage account or keep them in a safe-deposit box. Make sure someone close to you knows where your assets are held or stored.
Shred old account statements
One tangible sign of out-of-control financial clutter is piles of monthly account statements — or unopened envelopes that contain those statements. To get this paperwork under control, set up a filing system for current open accounts and stash the old statements, sorted by year and type of account, in shoe boxes. Write the year and the status of the accounts — OPEN or CLOSED — on the outside of each box. At the end of each year, pull the oldest boxes off the shelf and shred the contents.
Liquidate or insure valuable collectibles
Many people accumulate collectibles as a hobby. But these collections of postage stamps, coins, cars, artwork and other items can have an investment value as well. That means collectibles should be cataloged and insured as part of a financial clutter clean-up campaign.
“If you haven’t thought of (your collectibles) in an organized balance sheet way, you may be missing that your homeowners insurance has a low limit and you have a lot of exposure if those items are stolen or lost in a fire,” Ciccotello says.
If you’ve tired of a collection that has a high investment value, you might want to convert that “clutter” into cash and use the money to pay off debts or buy other assets.
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