Organize Your Money
We're gonna go through how to organize and find your money 'cause like I told you earlier, this is the number one challenge people have. Let's bring out our set. I'm gonna walk you through how to organize your financial life in less than an hour. Remember when I told you about the Mcentire's comin' into my office with a brown paper bag earlier in the class? That used to happen a lot. People would come in with brown paper bags and boxes of stuff. And what I realized is that people are super unorganized with their financial stuff. People literally have boxes with just all their shit in it and they have- like a lot of us have in the kitchen, right, there's like a- there's always like a bowl, and the stuff comes in and it sits in the bowl or there's a drawer. I'll never forget, when I did that- one of the Oprah shows. I go over to people's house to do a makeover. And the whole thing was don't set up for this, don't do anything 'cause I'm gonna go in and help them organize it. And so litera...
lly, we're like, "Where are all your financial documents?" And they had opened up this cabinet and all the stuff came falling out. So what I'm gonna show you right now is what I created for my clients 'cause I'm like how do I organize, how do I help my clients get organized, so that when they come into my office, quite frankly I can get to work a lot faster. 'Cause I can't do a financial plan until I know where you stand. You can't often do a financial plan until you know where you stand. You need to know where the money's going and what your net worth is. So how do you get organized? You guys were given these tools. Everybody at home, you got the workbooks. I'm gonna go through the find your stuff finish rich file folder system and my inventory worksheet. This is the exact tool I used at Morgan Stanley for my clients. I haven't really changed this a lot 'cause I haven't needed to. Even though I just showed you earlier mint.com and yodlee and level money and all these apps that you can use which everybody is now using them. There's a lot to be said for paper too. Having a file cabinet with your documents and a place to put them is still really helpful. It helps to still have printouts of stuff. Also for your spouse or your partner, God forbid something happens to you, 'cause the first place they're gonna go is the file cabinet, they're not gonna know your passwords unless you gave it to them. Here's what you need, let's go through the files. You're gonna need to find your stuff and you're gonna create 12 hanging folders. You're gonna have tax returns, people go how long do I keep my tax returns for? At least seven years. Some people keep 'em for 10. You don't necessarily need that in this file box that I'm gonna show you, you might put those in storage in the garage but I'd keep 'em as- Warren Buffett says he's kept every tax return he's ever had. Donald Trump's kept 'em, we just never got to see 'em. (audience laughs) Retirement accounts. You're gonna go and have social security. They used to send you social security statements. You should have a file with that in there. Investment accounts savings and checking household accounts credit card debt liabilities, rental properties, loans that you've given out to people, and money that you owe, student loans insurance family will, living trust children's accounts and rental property. There are 12 hanging file folders. Now I am sure you will come up with some extra ones and if you come up with them, tell me what they are. But what I have found is that these 12 file folders cover 90% of what you need to have to organize everything in your family's household with your money. Earlier I said I would give you a way to start as a couple, 'cause you guys are a couple. There's a way to start as a couple. If you're a couple and you're at home and you're watching this and your partner or your spouse is not here and you wanna get them to watch this class later and you wanna get them to do this with you, I would go to this lesson first 'cause this lesson, you can go, "Hey, I've got this great homework assignment for us. "We're gonna get our finish rich "file folder system organized at home." Now you can start this, by the way, without your partner. My experience is that you start organizing financial documents at home in the kitchen, your partner pretty quickly is gonna come over and go, "What are you doing?" and usually, unlike cleaning out the garage, they get pretty interested pretty quickly when you're creating a file folder box for all your money. I decided I would do like the Martha Stewart show and tell thing here today because life is like- of all the things I've taught in my books over the years, and people stop me and they thank me wherever I am, which I love, it's weird the things that people thank me for because when I put the file folder originally into one of my books, I was like well this is what I do for my clients so it'll probably be helpful to people. In a million years I never thought people would be stopping me on the streets and being like "Dude, thank you! "File folder box, "got it, "done!" (audience laughs) I get that all the time! "I love that file folder box!" And then I get weird questions. Everyone's interesting. So people are obsessed with, well what kind of file box should I use? I'm like, I have no- whatever you want! Here's a file box. So like, this is a great example for you guys at home. You get a little file box like this, one thing that's great is it's portable, you can take it wherever you want, some people have file drawers. You literally get these file folders, you get these hanging folders, you have a hanging folder, you make the labels, there's your 12 file folders, you put the file folders in the box, then you create hanging folders that go inside those. So you buy a box of these and you put 'em all in here. I'll give you an example, like the retirement accounts, if you have five retirement accounts, don't put five retirement accounts in one file folder. So you have a CreativeLive 401k plan, you write CreativeLive 401k plan, that goes in the retirement account folder. If you worked somewhere else before you got to CreativeLive and you have a 401k plan from there, then you literally go and you take it, you print it out and you put that and you stick it in the folder. If you have an IRA account somewhere. There's a reason to this, why I want you to keep having multiple folders, all the stuff I said earlier, I want you to see this so like if all of the sudden, if you have eight folders inside this retirement folder, you're gonna realize, what did he tell me I was supposed to do with all these IRA accounts? Consolidate them and put them all in one. Therefore you won't have eight folders. Does this make sense? Seeing this cacti cli it sounds silly but it's not, it's an eye opener. You're gonna go over to this will folder. See this right here, family will and trust, so you guys are gonna go over to the will and family trust folder and it's empty because half of you don't have one. 60% of Americans don't- you do? Good job. 60% of Americans don't have one of these so it's empty, so you're gonna have an empty folder. Nothing should worry you more than an empty folder. So then you'll be like okay, I need to go get my will done. Then you'll put your will in here. Some of you are gonna put your will in here and your will is so old it's gonna stick together and that means your will needs to be redone. Children accounts, rental properties, insurance. This can be a life saver too if something happens to one of you because everything is sitting in here. And then the last thing that's not here that I would do, and I don't know why it's not here, oh I know, it's the 13th folder. This is your inventory worksheet. So, guys at home, that's your financial inventory worksheet, this is your net worth statement on paper. This form, again, same form I use with my clients to organize all their financial documents, this helps you determine your net worth, it shows you where all your money's going, where does the money really go if you don't wanna use mint.com and you go and put this down on paper, I've given you the worksheet on where does all the money really go? Create a folder with your cash flow statement also, so it says where does the money really go, and you've got that on your document. Any questions about this part of it?
[Audience Member 1] How many months of statements should we include in the file folder such as, let's say, savings and checking statements?
Great question, it depends on how big your space is. No joke, 'cause this, you're not gonna get more than a year worth in here, I typically at the end of the year, clear this out, stick this in another box all the stuff that's inside it and then file that other box. One thing is, I'll give you the other approach, but I didn't wanna do two Martha Stewart projects today, is a binder. Some people don't like the file folder, I actually have a binder at home now. So I have a binder for every year, I have these tabs in a binder I can take the binder around the house really easily and I'm just slippin' 'em in and at the end of the year I take the binder stick it on a shelf, pull out a new binder and do it. That's another way to do it too.
[Audience Member 1] Are you against doing this completely digitally? In terms of saving PDFs and...
So, I have become way more digitized, you know, than I ever was, but, there's still something to be said for having the printouts. And I know, is God forbid something happens to me, where my wife is going first is into this file folder drawer. I also seem to find that there are times where something's not right, I don't what example I could give you, I'm looking for something, and I wanna go back and find it, and it's no longer online. You ever run into that? And so I still am doin' the old school thing of printing stuff but I've got most of my life online. So I didn't give you the exact answer you might've been looking for, I think there's something to be said for still printing, at least having- if you don't wanna print 12 statements a year, as an example for your broker's account, print one so at least one statement is sitting somewhere that somebody- either you can go find or somebody else can go find.
[Audience Member 2] So, when you change your employer, is it better to rollover to an IRA or to the new employer's 401k, is there a benefit to either or?
Really good question. Thank you for asking that. So, here are the benefits of going from one 401k plan to the next, provided the new plan's also a good plan, here are the benefits but I don't want you to do what the benefits are, so the benefits are that if you ever need to borrow from your 401k plan, you can borrow from it. So if you have money in a 401k plan and you move it to another 401k plan, you can borrow from that 401k plan, that's the technical benefit. The real world is I don't want any of you to borrow from your 401k plans because it's just a disaster and is a bad habit and people do it, and then they end up being in situations where they lose their job, they're forced to repay their loan, you can't repay the loan, now the loan's a distribution, now they owe money on the loan, which is taxable and a penalty. But that's a benefit, I'll have to tell you what that benefit is. So in most cases if you aren't worried about that benefit, then I'd roll it into a new IRA account. I didn't even say this, but one of the key advantages to an IRA account the only one in charge of your IRA account ultimately is you. You have full control over that IRA account, you also have unlimited investment options. With a 401k plan you're limited to whatever the choices are, today most 401k plans have good choices. But here is the one problem with 401k plans when you leave the job; a company can have a 401k plan, they can have it with Fidelity, and then the company makes an executive decision to switch the plan from Fidelity to Vanguard they switch that money and you're no longer there, and your money gets moved from one account to another, they don't always move that money into a like investment. A lot of times the money's gotta go- let's say you're in a target data mutual fund, they have to move that money in to cash, and you have to make the decision, first of all, to keep track of the plan, then you have to make the decision whether or not you wanna- you'll have to go reallocate it, so that's a problem. The other problem is that I've seen companies with 401k plans where the money was being transferred from one plan to another, and in that transfer time, the company actually- basically went out of business, example of that would be Enron, and you people couldn't get out of their plans 'cause there was this transfer process taking place and they couldn't sell their stock, so I just like having my money in an IRA account that I can call and I can deal with it, and I've got full control.
The question that came in here from Caesar Flores who wants to know if you file pay stubs actually printing out the physical pay stub, is that something that you should keep track of, and if so is this the system to do it in?
See? That's another folder. That's never been brought up. I love that! Constantly learning, good question. Here's what's interesting about this question, 'cause my instant answer's almost gonna be yes you should. I just talked to somebody, I can't say who this was, but it's a very public person, in the financial service industry, working for one of the largest financial service media companies, that just basically got laid off and is in dispute over a check that his employer says that he received and he says he hasn't received it. They have no records to prove- now I think is an interesting story, they have no records to prove that they gave it to him, supposedly, but he has no records to prove that he didn't get it. So my first question was can you go back and pull your pay stubs and he's like, it was like seven years ago, so in his case he's gonna have to go back to his bank account and try to show that no I didn't get an extra one of these checks. So, it might be worth keeping payroll, pay stubs.
[Audience Member 2] Comment on that as being in real estate, it's great to have your pay stubs handy because you need it for the lender.
So, I always say yes, that would be another file.
And in many cases now they want two years.
[Audience Member 2] Yeah. Yeah. And bank statements. So they want everything now.