How to Prepare Your Finances for a New Year

by Kevin on January 4, 2010

You are four days into your resolutions. How have you done thus far? Have you made any significant changes to your finances?

Let’s start 2010 off by getting our finances pointed in the right direction. We’ve talked about getting radical and selling everything. Now let’s clean up our act and get organized for this year.

Get Organized and Clean Financial House

Every situation is different, but here’s what I’m doing to prepare for 2010.

Shred Old Documents

We keep all sorts of important documents throughout the year. Sometimes we hold them much longer than that — conventional wisdom says to hold onto tax documents for 7 years. (That’s a long time.)

As we get to the end of the year we get to enjoy going through a massive pile of documents to decide whether or not we need to continue to keep them.

If we keep them they go back into the filing cabinet.

If their end is nigh we shred them. We bought an 8-sheet shredder (like this one) several years ago just for this task. Shredding your documents increases the security around your documents because, obviously, it is much more difficult to piece together the pieces of information when they are the size of confetti.

Any information sent to us via mail that has account numbers or any sensitive information goes into the shredder when we’re done with it.

In case you were wondering… yes, shredding documents is very satisfying. (At least until it jams like ours did last week!)

Reviewing Our Budget and Long Term Financial Plan

If you’ve just started reading my blog let me get this out there: I love budgeting. My budget is on a spreadsheet (unlike the pen and paper above) and is 51 lines long.

Yes, that is very specific.

No, your budget doesn’t have to be that specific.

Hopefully you are already living on a budget. (If not, get started on that RIGHT NOW.) The new year is a great time to sit down with your family and review everything.

Some questions you can ask during your budget review:

  • What major expenses are coming up this year? Check your progress toward those expenses, or, if you hadn’t planned for them just yet add those to the budget.
  • What goals are 100% funded? Assuming you’ve saved up for those goals on a monthly basis, congrats. Since you’ve saved up completely for one goal that frees up money for you to budget toward other goals. Don’t forget this step. Achieving one goal is great, but make sure you roll that monthly money toward a new goal.
  • What adjustments do we need to make? What worked last year? What didn’t work? Make adjustments now.

Gather Tax Documents

Tax day is April 15. You need to start gathering tax documents now in preparation of filing. Some of the following items you will receive via mail (so you may have to wait a few weeks), but here’s a short list to get started:

  • W-2s from employers
  • 1099s from banks, contract work, and dividend payments
  • a list of your charitable donations and receipts for those donations
  • any other applicable deductible expenses and their appropriate documentation

Create a New Tax Folder

While you are digging around in your 2009 tax folder, why not go ahead and make your 2010 tax folder? It will take you just a few minutes, but gets your organization for 2010 off to a great start.

How are you preparing to get radical and dominate your finances in 2010?

(Photos by Muffet, Kristian D., x_jamesmorris, and .)

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Megan January 4, 2010 at 11:04 am

DH and I need to go on a “financial retreat” one weekend, hopefully before baby #2 arrives. We need the time to sort through our accounts and see where everything is, what needs to be improved, etc. I’m also thinking that we need to get our will sorted out, too.

I really need a shredder. Hey, does anyone have any ideas of what to do with the shredded paper? Can you compost it?

Scott January 4, 2010 at 2:36 pm

Megan, composting your old papers is a great idea. In fact shredded paper makes great worm fodder (they seem to prefer that to almost anything else).

Kevin, I found you through Ramit’s from his latest “earn more in 2010” post. I’ve only read this one post so far, looks like you have good organizational advice. I’ll keep reading.

Mrs. Money January 4, 2010 at 5:19 pm

Megan- you definitely can compost that paper! That is great for the compost bin.

Kevin- I am addicted to shredding things. Sometimes I worry I’m shredding too much!

Kevin January 5, 2010 at 7:22 am

@Megan: A financial retreat is a great idea. It doesn’t have to be too fancy, and you would need to remember to bring everything you might need (bank statements and the like if you were working on the budget, etc.).

I may have to write about that.

Unfortunately we live in a neighborhood with a homeowners association so no composting for me. But I figure by throwing it away in smaller pieces … maybe it decomposes faster at the landfill?

@Scott: Thanks for stopping by. I greatly appreciate it and hope you’ll stick around.

@Mrs. Money: There have been a couple of times as I am in the middle of shredding a large pile of documents that I have a mini-panic and think “Did I just shred something important?”

It usually lasts a few seconds — until the next sheet goes in. Ha!

Golfing Girl January 5, 2010 at 8:18 am

Thanks for the tax reminder. I have been dreading putting together my spreadsheets for my side business (golf lessons) since it requires meticulously going through my lesson book (spreadsheet was lost when computer crashed). Although, it’s the first year I will be declaring a profit, so I guess that should make it a little less painful.

This is going to be a difficult year to budget, since I’ve decided to stay home when baby #2 arrives. But I see it as a challenge that every penny I can save will still allow us to go on a vacation this year, even if it’s an abbreviated one. Any additional pennies will fuel my Roth, so there’s another reason to clip coupons. One of my main financial goals in 2010 will be to do a better job with meal planning and synchronizing with grocery sales.

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