Streamline Your Financial Life

Spend less time managing your money and more time enjoying it with these expert tips designed to help you reclaim your desk and your sanity.

When Joseph Sobota of Kalamazoo, MI, approached retirement a couple of years ago, he figured life was about to get a lot simpler. "Boy, was I in for a surprise," says the now 66-year-old retiree. Between IRA distributions, pension payouts, managing his investments and estate planning, "my finances had become overwhelming," Sobota says.

But it doesn't have to be that way. "Most people's financial lives can be simplified a great deal," says Stewart Welch III, a certified financial planner in Birmingham, AL. To help you spend less time managing your financial life and more time enjoying it, we asked a number of experts for pointers. Here's a checklist of their best advice.

Start with a simple filing system. Americans spend an average of 150 hours a year simply trying to find things in their homes, according to Barbara Hemphill, author of Taming the Paper Tiger at Home (Kiplinger's). That's the equivalent of 20 nights of sleep, or about thirty 18-hole golf games. But sacrificing leisure time isn't the only problem with being disorganized. You risk missing payment deadlines and incurring penalties, losing receipts for tax-deductible expenses and forgetting to respond to important financial notices.

One effective low-tech solution from Ronni Eisenberg, co-author of nine books on organizing, including Organize Your Home Office (Hyperion Press), is to head to your local office-supply store and buy two accordion or expanding files with internal dividers. These typically have a dozen pockets and cost between $5 and $12, but you can also find larger ones. While you're there, pick up a box of manila folders and consider buying a filing cabinet if you don't already have one.

Eisenberg suggests using one accordion file exclusively for bill paying and calling it your "Bill File." Label the first section "Unpaid Bills," and dedicate each of the others to the kinds of bills you usually pay, such as car insurance and cable TV. As new bills arrive, stuff them in Unpaid Bills, putting those with the earliest due dates at the front. Once a bill has been paid, write the check number, amount, and date of your check on the invoice stub and move it to the proper section. Use one accordion file per year.

The second accordion file is for any non-bill related document that needs your attention. Hemphill suggests calling this your "Action File." Devote each divider to a particular topic, such as Social Security benefits, IRA contributions/withdrawals, or income taxes.

Also start a manila folder for each topic and place them in the filing cabinet. As you receive mail, decide if it requires a response and belongs in your "Action File." Once you've taken the proper step, transfer the paperwork to the corresponding folder in your file cabinet. If you receive a document that doesn't require action but could be useful to keep anyway, you can head straight for the file cabinet.

Toss everything you don't need. "About 80 percent of what we keep we never use," Hemphill says. Here's how to decide what to stash or trash.

Generally, it makes sense to keep any backup to your tax return, such as W-2 forms, receipts for charitable donations, and records of other deductible expenses for six years. The standard statute of limitations for audits is three years, but if the IRS suspects you underreported your income by more than 25 percent, it can audit you up to six years after you file. If fraud is involved, or if you fail to file, then there's no statute of limitations. As for the actual tax returns, "you'll want to hang on to those forever," says Lisa Osofsky, a tax adviser at M. R. Weiser & Co., an accounting firm in Edison, N.J. "If the IRS ever comes back to you and says it doesn't have a record of you filing for a certain year, you will be relieved to have a copy of your return."

Keep monthly or quarterly investment statements only until you receive your year-end summary -- then toss them. Save the summaries, stock certificates, and records of any investment purchases or sales for as long as you own an investment plus seven years after you file taxes reflecting its sale. Likewise, keep your monthly mortgage statements only until you receive a year-end statement from the mortgage company. Save the annual statements for the life of the mortgage and seven years beyond that.

As for monthly bank and credit card statements, you can chuck them after a year unless you might need them for an audit, says David Bugen, a financial planner in Chatham, N.J. Insurance policies should be held for as long as they are active, while warranties and receipts should be stapled together and kept for as long as the warranty lasts, Hemphill says. Stash what you choose to keep for a year or more in your file cabinet. At the end of each year, sift through the cabinet and purge any paperwork you no longer need.

Cut back on credit cards. The more credit cards you have, the more paper you'll have to deal with. "Two credit cards are all you need," says Robert B. McKinley, chief executive officer of CardWeb.com, a credit card tracking company in Frederick, MD. Most people carry three credit cards, and some 20 percent of Americans have five or more, he adds. McKinley recommends carrying two general purpose cards, such as Visa, MasterCard, or American Express, and canceling cards from stores and gas stations.

Stand while you sort the mail. Here's a trick to avoid drowning in your mail: "Handle it standing up as soon as you receive it," author Eisenberg says. "People are much more efficient when standing. It won't take you as long, and you'll make sharper decisions."

For each piece of mail, decide whether to "file, act, or toss," productivity expert Hemphill suggests. Any mail that you don't trash can be tucked into its appropriate place in your new filing system.

Establish a bill-paying routine. First, pick two days a month -- say, the first and 15th -- when you will commit to paying bills and addressing other financial matters. Next, designate a spot as your paper management center. "It must be a place you like to be," Hemphill says. "If you enjoy doing things where other people are, pick a corner of the family room." If you like working to music, furnish your spot with a radio.

Let your bank pay your bills. For recurring monthly bills, such as utilities and mortgage payments, you can set up an automatic payment program through your bank. Call each prospective payee for details. Most are more than happy to help, since it saves them postage and paperwork too.

Combine your investment accounts. If you feel scattered when it comes to your finances, you probably are. Like many people, you may have two or more IRAs at different financial institutions, an assortment of mutual funds, and maybe even several brokerage accounts. For simplicity's sake, you may want to look into consolidating your investments at a single broker, suggests financial planner Welch. Most brokerage firms, such as Charles Schwab (800-435-4000, www.charlesschwab.com), Fidelity (800-343-3548, www.fidelity.com), and TD Waterhouse (800-934-4448, www.tdwaterhousegroup.com), will give you a consolidated statement at the end of the year to ease your paperwork load.

Don't over-diversify. Yes, it's important to diversify, but don't go overboard, especially with mutual funds. "You'll end up with a lot of overlapping investments that don't add value to your portfolio," says Ronald Rogé, an investment adviser and certified financial planner at R.W. Rogé & Co. in Bohemia, N.Y. You'll also pay more in fund fees. And each fund will add to your record-keeping burden. "Between six and eight funds are about all you need," Rogé says. "Be sure to own some international and domestic, small and large companies, a mix of value and growth stocks, and short, medium, and long-term bonds."

Get into index funds. For large-company stocks, you may enjoy the biggest long-term gains -- and the least amount of work -- with an S&P 500 index fund, which simply invests in the stocks that make up the index. "With index funds you know how a fund invests. You don't have to monitor a manager," says Harold Evensky, a financial planner in Coral Gables, FL. With an actively managed fund, on the other hand, "the manager's style may change, throwing off your allocation, or a manager may leave the fund" and be replaced with someone whose investing style is very different, Evensky adds.

Large-company index funds also tend to have lower fees than managed funds. Adding index funds to your portfolio can also be achieved through a relatively new investment vehicle called exchange traded funds.

Invest on autopilot. Consider a systematic investment program with a mutual fund. An amount that you specify (it can be as little as $25 a month) will be automatically deducted from your bank account monthly or quarterly and invested in the mutual fund of your choice. Just call your fund company for details on getting started.

Don't let cost basis drive you crazy. It's always nice to realize a healthy gain on an investment, but the bad news is that, come tax time, you have to figure out your cost basis. That's the amount you paid for an investment, plus any reinvested dividends and fees or commissions incurred to acquire it. Gains above that amount are subject to taxes.

If you've lost track of the initial purchase price for a stock you've owned a long time or received as a gift, "you can use a reasonable estimate," says tax adviser Osofsky. To do that, find out the range of the stock's price for the year it was purchased (call the company's investor services department) and simply use the average share price as your cost basis.

In the case of mutual funds, determining cost basis is often no problem because many fund companies regularly send a summary report that includes that information. If you haven't kept it, call your fund company.

Tune out the financial news. Investors who follow every tick of the stock market in hopes of jumping in and getting out at precisely the right times are almost always doomed to failure.

Trying to outwit the market will not only waste your time and fray your nerves but seriously hurt your returns. According to Ibbotson Associates, an asset allocation consulting firm in Chicago, if you had invested $1 in the S&P 500 index in 1926 and left it there through 2000, it would have grown to $2587. But if you'd tried to time the market and had the misfortune to miss the best 40 months during that period, you would have pocketed just $15.33.

Know what you've got coming for retirement. For the past two years the Social Security Administration has been sending a statement of benefits to workers over the age of 25. If you haven't received one, you can request it at the Social Security Administration Web site (www.ssa.gov) or by calling 800-772-1213. You can also use the calculator on its Web site to figure out your benefits based on different assumptions.

For company pensions, investment adviser Rogé says, "Your current employer can supply you with a formula to forecast how much you'll get in a lump sum or an annuity based on an assumed salary increase and retirement date." If you don't have similar pension information from past employers, call to request it. Keep all this pension paperwork with your other long-term files.

Stay in touch with ex-employers. If a former employer will owe you a pension someday and you have moved since you worked there, make sure the company's benefits department has your new address on file. Otherwise, your pension checks may go off in the wrong direction.

Spare your heirs. To make it easier for your heirs to find all your financial information after your death, pick up a "letter of instructions" form at an accountant, attorney, or financial planner's office and fill it out. Keep it with your will or give it to a trusted family member. "This is a straightforward document that lays out all details of your financial life," Osofsky says. "It simplifies matters because all of your information is summarized in one place." Which is about as streamlined as it gets.