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Develop Your Personalized Financial Plan!

Steps to Build Plan
  Step 1 - Set goals
  Step 2 - Gather data
  Step 3 - Determine net worth
  Step 4 - Create/update your budget
  Step 5 - Define the cost of goals
  Step 6 - Assess your financial situation
  Step 7 - Develop the plan
  Step 8 - Take action
  Step 9 - Get help
  Net Worth Calculator (CNN Money)
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  Net Worth Worksheet
Adequate record-keeping is important

A person's entire existence, from birth to death, is thoroughly recorded in those pieces of paper that clutter your desk, fill up your filing cabinet, or occupy lots of storage boxes. But thorough records are the raw material for successful financial planning. Poor records, at best, hinder the planning process. At worst, they can cripple your efforts to reach your financial goals.

Adequate record-keeping is important for more than financial purposes, however. A well-prepared household inventory can make all the difference in filing an insurance claim for damages or loss. Well-documented medical histories may prove valuable in an emergency. Your last will and testament, carefully thought out and properly drafted with an accompanying letter of instruction, will protect your heirs and your final wishes.

While making sense of the myriad papers in our lives can lead to frustration, keeping family records straight does not have to be difficult. The key is to know what to keep and how long to keep it. Sort documents into categories, and organizing them becomes easier. Trying separating your papers according to the following guidelines.

Financial papers
To help you keep track of your money, assets and liabilities, measure your wealth against your goals and back up your tax returns, keep your financial records at home in a fire-resistant file cabinet or safe. They should include bank, brokerage, credit card and mutual fund statements, credit reports, financial plans, retirement records from your employers and from Social Security, and insurance policies.

Income tax files
Don't be intimidated by the complexity of your tax return or the threat of an IRS audit when you are wondering how many decades your tax records should cover. Practically speaking, it is safe to keep all income tax records for six years from the date of filing. The IRS has three years to audit you unless you underestimate income by 25% or more, in which case the limit is six years. However, if fraud is involved, there is no limit.

For each year that you file a federal return, keep the Form 1040 with the attached schedules and forms that support the numbers you submitted. In addition, keep whatever evidence you have that is related to the information you gave the IRS. This includes receipts; invoices; mileage and expense logs; calendars marked with appointment times, places and people; and financial statements.

Like your financial records, the tax documents should go into a fire-resistant safe.

Family records
These papers are the historical evidence of your life, from birth to death. Keep them permanently, preferably in a a safe-deposit box. They include adoption papers, baptismal, birth, married and death certificates, divorce decrees, citizenship papers, education records, Social Security cards and passports.

It pays to keep a copy of each of these records in your files at home. If possible, you may wish to keep certified (official) copies to facilitate legal or financial transactions. Certified copies typically $5 to $10 each.

Health histories
In many states, your medical records are not your property; they belong to the doctor or hospital. However, you are entitled to have a copy of most, if not all, your records. Someone, after all, should have your complete medical history, and what better person than you? Health records should include medical and treatment histories, vital statistics such as blood type and allergies, prescriptions and test results. Not only can they be vital in a medical emergency, but they are needed to support insurance claims, legal proceedings and tax deductions. Having your own copies of your physician's and hospital's records also gives you an opportunity to verify their accuracy.

Getting a copy of your medical records should be easy. Typically you simply have to write a letter requesting them. In some cases, there may be a small duplication fee.

Legal documents
Besides your will, trusts and powers of attorney, you should keep records of instructions you have established about heroic measures to keep you alive; your intentions about organ donations; bankruptcy papers; business agreements; inheritance papers; and pre- or post-nuptial arrangements. These documents should be keep permanently or until they are revised.

Wills and letters of instruction should be easily accessibly to the executor of your estate. For that reason, you might not want to put them in a safe-deposit box. Consult your lawyer about what's best; your banker will know how to arrange for someone else to have access to your box. Your lawyer may also need a copy with original signatures. For your own records at home, it makes sense to keep a copy, although it may not be official. Keep in mind that the more copies are in circulation, the more complicated any changes will be.

A letter of instruction will help your heirs by giving them an inventory of your assets and liabilities and telling them where to find pertinent papers. It is also a good place to outline your funeral preferences and make personal statements to your heirs if you want.

Military records
There are 11 records of military service that all veterans should include in their permanent home files. The most important of these, the DD Form 214, "Certificate of Release or Discharge from Active Duty," should be kept in a safe-deposit box. It is vital for both the veteran and the veteran's survivors in securing benefits.

Besides the DD Form 214, other documents include:

  • DD Form 256
  • Military Personnel Record Jacket
  • military medical and dental records
  • retirement orders or letter
  • last active-duty pay statement
  • VA award letter (verifying a disability)
  • certificate of eligibility for loan guaranty benefits
  • first retirement pay statement
  • Survivor Benefit Plan election form
  • Veterans' or Servicemen's Group Life Insurance election form

Ownership papers
In addition to keeping automobile titles, real estate deeds and warranties in your files, an up-to-date household inventory is an excellent way to help keep track of belongings. Detailed inventories are especially important for collectibles and high-priced items. Your inventory should list the price paid and any identification numbers for each item. Photographs and videos are a big plus.

Keep in mind that property ownership comes in many forms: joint tenants with rights of survivorship, joint tenants in common, or other entities. Also, community property laws can have a major impact on tax and estate treatment of your assets and income. Therefore, people moving into and out of these states should understand the implications of such laws.