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how to organize your personal year end finances

How to Organize Your Personal Year End Finances.

You should never organize your year-end finances all at once. Rather, you should be engaged in a steady process of organizing and reorganizing your financial documents and information throughout the year. The process you use when organizing at the end of the year will be basically the same process you use monthly or quarterly to evaluate your investments, insurance, and budget. Use the year-end financial organizational process to get the opinion of a financial planner to help you streamline your finances, identify areas of waste, and take corrective actions to save money.

Method 1 Getting Organized.

1. Select your organizational categories. Knowing how to organize your financial documents can be tough. Thinking broadly about the sorts of documents you ought to organize for your year-end finances will help the process move along smoothly. Some documents might need to be copied and placed in multiple locations. For instance, education loan payments might need to be in a “loans” folder and also a “taxes” folder. Depending on what sort of financial documents you have, you may or may not need folders devoted to each of the main financial categories, which include.

Financial management (bank statements and loan records).

Insurance and annuity documents (policies and statements).

Estate documents (wills, trusts, and powers of attorney).

Investments (stocks and bond).

Income tax information (tax returns and documents attesting to charitable giving).

Employment and military records (discharge papers and employee benefits).

Home records (appraisals, renovation receipts).

Medical documents (summaries of recent appointments and any medical bills or payments made).

Legal documents (passports, personal records, and real estate settlements).

2. Use the same organizational system for all your documents. You probably receive and pay some bills through regular mail, and some through digital outlets or automatic account debiting. In this case, it's important to impose a parallel structure on your analog and digital documents alike.

For instance, if you organize your vertical files containing utility bills, credit card bills, and other significant financial documents in order that they were received, you should not organize your digital files into folders containing payments, bills, and receipts according to the company or institution that you made the payments to.

3. Know what to keep. Retain anything tax-related for at least three years. Keep anything that demonstrates a financial loss for seven years. For instance, you ought to keep a bill of sale on a property that sold for less than what you paid for it. You should also retain receipts for transactions paid by credit card until you get the credit card bill that reflects them. Finally, keep all monthly account statements until you get the year-end reconciliation statement.

Conversely, you should know what to get rid of.When new insurance policies arrive, get rid of the old ones.

Err on the side of caution when disposing of financial documents. If you're unsure if you need to keep something, retain it.

For more in-depth guidelines on what you should pitch and keep, consult IRS Publication 17.

4. Use an app or website to help you organize. There are a variety of handy apps to help get your year-end finances organized. For instance, you might check out feedthepig.com, manilla.com, or mint.com.Apps that might help include Mint, Personal Capital, and Spending Tracker.

Method 2 Looking Ahead.

1. Set a budget. Find ways to save next year. Use your year-end financial organization time to identify sources that are draining your money. For instance, if you're paying for cable TV but never watch it, think about cancelling it altogether.

Overall, you should be spending about 35% of your income on home expenses (rent, utilities, and groceries), 15% on transportation expenses (car insurance, train fare, and auto repairs), 25% on entertainment and other miscellaneous expenses, 15% on paying off debt, and putting the final 10% of your income toward savings.

If you live in an expensive area or have a low income, you might need to contribute more money to home expenses and less toward debt or miscellaneous expenditures.

2. Simplify payments and financial data for next year. When you're done organizing your current year's financial data and documentation, look for ways to streamline the process next year. For instance, you can cut back on time spent searching for wayward documents by using automatic bill payments. You might also use debiting by tying regular payments like utilities and credit card charges directly to your bank account.

Cut back on the number of credit cards you use regularly. This will reduce the number of credit card bills you need to juggle. Use the credit card with the lowest interest rate as your day-to-day credit card, and use the other cards once a month in order to prevent their disuse from hurting your credit score.

For the same reason, limit your bank accounts. You should have one checking account and one savings account. If you have multiple checking and savings accounts, close the one with the most fees and least generous terms of service.

Consolidate your retirement accounts and investments, too. If you have several IRAs, transfer all the money into a single IRA. Use one brokerage firm to simplify investments.

3. Keep your finances organized throughout the year. Instead of putting all your receipts, account statements, and other financial documents in a stack and watching them slowly pile up over the course of a year, put them in the appropriate file or folder as you receive them. This will prevent confusion when trying to organize everything at year's end.

Use a three-ring binder with pockets to organize your financial materials in an orderly way. Move non-current financial records to your filing cabinet.

If you feel more comfortable printing out digital documents, print them out and put them in your vertical file or binder.

If you don't print out digital receipts and other documents, ensure that you put them in the appropriate folder according to your predesignated system as you receive them. For instance, when you get your digital W-2, immediately download it and put it with your other tax documents.

If you need to copy certain digital documents to make them accessible in multiple locations, don't be afraid to do so.

Method 3 Evaluating Your Financial Health.

1. Consult a financial planner or accountant. With the help of a certified financial planner or accountant, you'll be able to get your year-end finances under control. They can help you find ways to save when you file taxes in the coming months, and can explain some of the nuances of the tax code. For instance, you might want to ask.

Should I accelerate or defer income?

What losses or gains should I take this year?

Should I convert my traditional IRA to a Roth IRA so that my earnings will grow tax-free?

Are there any charitable donations I should make?

2. Total your year-to-date spending. You should have a column with all the payments, investments, and savings you have at the end of the year. Compare these numbers to their counterparts at the beginning of the year to get an overall sense of your financial health.

Your investment value should be greater at the end of the year than it was at the beginning of the year.

Your savings should be higher at the end of the year than it was at the beginning of the year.

Your spending should be less than the value of your savings.

3. Review your credit reports. Each year, you are entitled to three free credit reports, one each from the three major credit agencies (Experian, Equifax, and TransUnion). These reports will let you know if your credit score is good or if it needs a boost.

The best way to check your credit reports is not to check all three at once, but rather to space them out regularly over time. Ideally, you'd check one every four months.

4. Check your portfolio. Read the latest reports from your stock broker or financial planner to determine the relative health of your investments. If your portfolio is not doing well, think about investing elsewhere. Talk to a certified financial planner or stockbroker for advice about how to develop a robust portfolio.

Method 4 Finding Ways to Save.

1. Analyze your insurance coverage. If you have home, life, auto, or other insurance, contact some agents representing insurers in your area to find out if you have the best coverage you can afford. If you've made improvements to your home over the past year, you may have increased the value of your home, and that value should be reflected in your insurance policy.

Likewise, if you've welcomed a new family member into your family over the past year, you must check with your insurance provider to guarantee that they're covered under your insurance.

2. Review your tax data. Working with a tax professional, find ways to reduce your tax burden before the year is out. Charitable giving is the easiest way to do this. Look for reputable charities whose work you believe in through GuideStar (http://www.guidestar.org), CharityWatch (https://www.charitywatch.org/home) and Charity Navigator (http://www.charitynavigator.org).

You can also make in-kind (material) donations to thrift stores like the Salvation Army in exchange for a tax discount.

You can also qualify for tax deductions based on work-related expenses like travel or items of clothing you bought specifically for work.

3. Update your information where necessary. If you've had a change in your marital status you may need to revise your tax withholding and/or employee health coverage. If you're unsure if you need to update this information, contact a financial planner for assistance.

4. Empty your flexible spending account. A flexible spending account for healthcare should be used to cover outstanding claims from your doctor, dentist, or other health provider. If you have a flexible spending account oriented toward other types of spending like dependent care, employ the account to cover the appropriate expenses before the year is out.

Only $500 of a flexible spending account can carry over into the following year, so it's important to take full advantage of the account before the year ends.

January 22, 2020

How to Organize Your Personal Year End Finances

How to Organize Your Personal Year End Finances.

January 22, 2020

Ten Ways to Create Shareholder Value (part 3).

by Alfred Rappaport.

Principle 8.

Reward middle managers and frontline employees for delivering superior performance on the key value drivers that they influence directly.
Although sales growth, operating margins, and capital expenditures are useful financial indicators for tracking operating-unit SVA, they are too broad to provide much day-to-day guidance for middle managers and frontline employees, who need to know what specific actions they should take to increase SVA. For more specific measures, companies can develop leading indicators of value, which are quantifiable, easily communicated current accomplishments that frontline employees can influence directly and that significantly affect the long-term value of the business in a positive way. Examples might include time to market for new product launches, employee turnover rate, customer retention rate, and the timely opening of new stores or manufacturing facilities.

My own experience suggests that most businesses can focus on three to five leading indicators and capture an important part of their long-term value-creation potential. The process of identifying leading indicators can be challenging, but improving leading-indicator performance is the foundation for achieving superior SVA, which in turn serves to increase long-term shareholder returns.

Principle 9.

Require senior executives to bear the risks of ownership just as shareholders do.
For the most part, option grants have not successfully aligned the long-term interests of senior executives and shareholders because the former routinely cash out vested options. The ability to sell shares early may in fact motivate them to focus on near-term earnings results rather than on long-term value in order to boost the current stock price.

To better align these interests, many companies have adopted stock ownership guidelines for senior management. Minimum ownership is usually expressed as a multiple of base salary, which is then converted to a specified number of shares. For example, eBay’s guidelines require the CEO to own stock in the company equivalent to five times annual base salary. For other executives, the corresponding number is three times salary. Top managers are further required to retain a percentage of shares resulting from the exercise of stock options until they amass the stipulated number of shares.
But in most cases, stock ownership plans fail to expose executives to the same levels of risk that shareholders bear. One reason is that some companies forgive stock purchase loans when shares underperform, claiming that the arrangement no longer provides an incentive for top management. Such companies, just as those that reprice options, risk institutionalizing a pay delivery system that subverts the spirit and objectives of the incentive compensation program. Another reason is that outright grants of restricted stock, which are essentially options with an exercise price of $0, typically count as shares toward satisfaction of minimum ownership levels. Stock grants motivate key executives to stay with the company until the restrictions lapse, typically within three or four years, and they can cash in their shares. These grants create a strong incentive for CEOs and other top managers to play it safe, protect existing value, and avoid getting fired. Not surprisingly, restricted stock plans are commonly referred to as “pay for pulse,” rather than pay for performance.

In an effort to deflect the criticism that restricted stock plans are a giveaway, many companies offer performance shares that require not only that the executive remain on the payroll but also that the company achieve predetermined performance goals tied to EPS growth, revenue targets, or return-on-capital-employed thresholds. While performance shares do demand performance, it’s generally not the right kind of performance for delivering long-term value because the metrics are usually not closely linked to value.

Companies need to balance the benefits of requiring senior executives to hold continuing ownership stakes and the resulting restrictions on their liquidity and diversification.

Companies seeking to better align the interests of executives and shareholders need to find a proper balance between the benefits of requiring senior executives to have meaningful and continuing ownership stakes and the resulting restrictions on their liquidity and diversification. Without equity-based incentives, executives may become excessively risk averse to avoid failure and possible dismissal. If they own too much equity, however, they may also eschew risk to preserve the value of their largely undiversified portfolios. Extending the period before executives can unload shares from the exercise of options and not counting restricted stock grants as shares toward minimum ownership levels would certainly help equalize executives’ and shareholders’ risks.

Principle 10.

Provide investors with value-relevant information.
The final principle governs investor communications, such as a company’s financial reports. Better disclosure not only offers an antidote to short-term earnings obsession but also serves to lessen investor uncertainty and so potentially reduce the cost of capital and increase the share price.

One way to do this, as described in my article “The Economics of Short-Term Performance Obsession” in the May–June 2005 issue of Financial Analysts Journal, is to prepare a corporate performance statement. (See the exhibit “The Corporate Performance Statement” for a template.) This statement:

separates out cash flows and accruals, providing a historical baseline for estimating a company’s cash flow prospects and enabling analysts to evaluate how reasonable accrual estimates are;
classifies accruals with long cash-conversion cycles into medium and high levels of uncertainty;
provides a range and the most likely estimate for each accrual rather than traditional single-point estimates that ignore the wide variability of possible outcomes;
excludes arbitrary, value-irrelevant accruals, such as depreciation and amortization; and
details assumptions and risks for each line item while presenting key performance indicators that drive the company’s value.

Could such specific disclosure prove too costly? The reality is that executives in well-managed companies already use the type of information contained in a corporate performance statement. Indeed, the absence of such information should cause shareholders to question whether management has a comprehensive grasp of the business and whether the board is properly exercising its oversight responsibility. In the present unforgiving climate for accounting shenanigans, value-driven companies have an unprecedented opportunity to create value simply by improving the form and content of corporate reports.

The Rewards—and the Risks.
The crucial question, of course, is whether following these ten principles serves the long-term interests of shareholders. For most companies, the answer is a resounding yes. Just eliminating the practice of delaying or forgoing value-creating investments to meet quarterly earnings targets can make a significant difference. Further, exiting the earnings-management game of accelerating revenues into the current period and deferring expenses to future periods reduces the risk that, over time, a company will be unable to meet market expectations and trigger a meltdown in its stock. But the real payoff comes in the difference that a true shareholder-value orientation makes to a company’s long-term growth strategy.

For most organizations, value-creating growth is the strategic challenge, and to succeed, companies must be good at developing new, potentially disruptive businesses. Here’s why. The bulk of the typical company’s share price reflects expectations for the growth of current businesses. If companies meet those expectations, shareholders will earn only a normal return. But to deliver superior long-term returns—that is, to grow the share price faster than competitors’ share prices—management must either repeatedly exceed market expectations for its current businesses or develop new value-creating businesses. It’s almost impossible to repeatedly beat expectations for current businesses, because if you do, investors simply raise the bar. So the only reasonable way to deliver superior long-term returns is to focus on new business opportunities. (Of course, if a company’s stock price already reflects expectations with regard to new businesses—which it may do if management has a track record of delivering such value-creating growth—then the task of generating superior returns becomes daunting; it’s all managers can do to meet the expectations that exist.)

Value-creating growth is the strategic challenge, and to succeed, companies must be good at developing new, potentially disruptive businesses.

Companies focused on short-term performance measures are doomed to fail in delivering on a value-creating growth strategy because they are forced to concentrate on existing businesses rather than on developing new ones for the longer term. When managers spend too much time on core businesses, they end up with no new opportunities in the pipeline. And when they get into trouble—as they inevitably do—they have little choice but to try to pull a rabbit out of the hat. The dynamic of this failure has been very accurately described by Clay Christensen and Michael Raynor in their book The Innovator’s Solution: Creating and Sustaining Successful Growth (Harvard Business School Press, 2003). With a little adaptation, it plays out like this:

Despite a slowdown in growth and margin erosion in the company’s maturing core business, management continues to focus on developing it at the expense of launching new growth businesses.
Eventually, investments in the core can no longer produce the growth that investors expect, and the stock price takes a hit.
To revitalize the stock price, management announces a targeted growth rate that is well beyond what the core can deliver, thus introducing a larger growth gap.
Confronted with this gap, the company limits funding to projects that promise very large, very fast growth. Accordingly, the company refuses to fund new growth businesses that could ultimately fuel the company’s expansion but couldn’t get big enough fast enough.
Managers then respond with overly optimistic projections to gain funding for initiatives in large existing markets that are potentially capable of generating sufficient revenue quickly enough to satisfy investor expectations.
To meet the planned timetable for rollout, the company puts a sizable cost structure in place before realizing any revenues.
As revenue increases fall short and losses persist, the market again hammers the stock price and a new CEO is brought in to shore it up.
Seeing that the new growth business pipeline is virtually empty, the incoming CEO tries to quickly stem losses by approving only expenditures that bolster the mature core.
The company has now come full circle and has lost substantial shareholder value.
Companies that take shareholder value seriously avoid this self-reinforcing pattern of behavior. Because they do not dwell on the market’s near-term expectations, they don’t wait for the core to deteriorate before they invest in new growth opportunities. They are, therefore, more likely to become first movers in a market and erect formidable barriers to entry through scale or learning economies, positive network effects, or reputational advantages. Their management teams are forward-looking and sensitive to strategic opportunities. Over time, they get better than their competitors at seizing opportunities to achieve competitive advantage.
Although applying the ten principles will improve long-term prospects for many companies, a few will still experience problems if investors remain fixated on near-term earnings, because in certain situations a weak stock price can actually affect operating performance. The risk is particularly acute for companies such as high-tech start-ups, which depend heavily on a healthy stock price to finance growth and send positive signals to employees, customers, and suppliers. When share prices are depressed, selling new shares either prohibitively dilutes current shareholders’ stakes or, in some cases, makes the company unattractive to prospective investors. As a consequence, management may have to defer or scrap its value-creating growth plans. Then, as investors become aware of the situation, the stock price continues to slide, possibly leading to a takeover at a fire-sale price or to bankruptcy.

Severely capital-constrained companies can also be vulnerable, especially if labor markets are tight, customers are few, or suppliers are particularly powerful. A low share price means that these organizations cannot offer credible prospects of large stock-option or restricted-stock gains, which makes it difficult to attract and retain the talent whose knowledge, ideas, and skills have increasingly become a dominant source of value. From the perspective of customers, a low valuation raises doubts about the company’s competitive and financial strength as well as its ability to continue producing high-quality, leading-edge products and reliable postsale support. Suppliers and distributors may also react by offering less favorable contractual terms, or, if they sense an unacceptable probability of financial distress, they may simply refuse to do business with the company. In all cases, the company’s woes are compounded when lenders consider the performance risks arising from a weak stock price and demand higher interest rates and more restrictive loan terms.

Clearly, if a company is vulnerable in these respects, then responsible managers cannot afford to ignore market pressures for short-term performance, and adoption of the ten principles needs to be somewhat tempered. But the reality is that these extreme conditions do not apply to most established, publicly traded companies. Few rely on equity issues to finance growth. Most generate enough cash to pay their top employees well without resorting to equity incentives. Most also have a large universe of customers and suppliers to deal with, and there are plenty of banks after their business.

It’s time, therefore, for boards and CEOs to step up and seize the moment. The sooner you make your firm a level 10 company, the more you and your shareholders stand to gain. And what better moment than now for institutional investors to act on behalf of the shareholders and beneficiaries they represent and insist that long-term shareholder value become the governing principle for all the companies in their portfolios?

July 25, 2020

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how to organize your personal year end finances

How to Organize Your Personal Year End Finances.

How to Organize Your Personal Year End Finances

How to Organize Your Personal Year End Finances.

Ten Ways to Create Shareholder Value (part 3).

Ten Ways to Create Shareholder Value (part 3).

Are you embarrassed by your hair loss

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