Helping Clients Keep Their Financial Resolutions

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It's a new year and many clients start it off right by organizing financial files and “cleaning house.” The benefits of this are twofold: 1) They will gain a clearer idea of their current financial situation, and 2) They can form financial goals for their future. Now let's take a closer look at how accounting professionals can help clients perform a “financial checkup.”

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Ask One Question

It is human nature to keep things rather than decide what to do with them, so as clients go through their records, they should ask themselves one question: What is the worst possible scenario that could happen if I throw this away? In most cases, the worst thing that could happen is they might receive a nasty paper cut. At best, their financial files will be organized once they finish. Nevertheless, don't just dump the entire contents of the filing cabinet into the shredder. Here are some general rules to follow when deciding what to keep and what to throw out:

  • Paycheck stubs. If they have no disputes regarding the amounts paid and deducted, throw out the stub as soon as the next one is received. Each new stub makes the last obsolete because it updates each total. Keep the final paycheck stub of the year to verify the amount listed on their W-2 tax form.
  • Bank statements. Use bank statements to reconcile checkbooks and then properly dispose of them. Make certain to rip up the statement so account numbers are no longer legible, or better yet, invest in an inexpensive paper shredder. Otherwise, thieves could rifle through the trash and steal their identity. Be sure to keep canceled checks relating to donations, home improvements, the purchase of business assets, and tax and mortgage payments. These checks may have tax ramifications.
  • Paid bills. Once the canceled check or proof of payment of credit card bills, utility bills or other bills are received and there are no disputed charges, they can generally be thrown away. But, keep anything that relates to the purchase of a depreciable asset for as long as the asset is owned, plus at least three years. And, in the case of divorce proceedings, bills may be used to determine who pays child support and the amount of child support each month.
  • Tax returns. The IRS can perform an audit up to three years from the date the return is filed – six years in certain limited circumstances. Therefore, keep all tax returns and related paperwork for a minimum of three years, or preferably six years, with the exception of Estate Tax form 706, Gift Tax form 709 and returns with property sales which should all be kept indefinitely.

A Financial Checkup

Now that the client has cleaned and organized the files, it is time to perform a “financial checkup.” Conduct the following four steps annually, to give them a better understanding of where they stand financially:

  1. Determine the debt/income ratio. If they plan to apply for a loan, a key figure lenders use to determine if you qualify is the debt/income ratio. Lenders consider individuals a risk if their short-term consumer debt exceeds 20 percent of their income. To determine the debt/income ratio: Calculate the monthly adjusted gross income, which is monthly gross income less withholdings for health insurance premiums, 401(k)'s, flexible spending accounts, child support payments and alimony. Then, calculate the total required minimum monthly payments for all non-mortgage related debt (i.e. credit cards, automobiles, personal loans etc.) Then divide this number by the monthly adjusted gross income. This gives the debt/income ratio and this figure should be less than 20 percent.
  2. Review the client's credit report. An annual check of an individual's credit report will eliminate surprises when applying for a consumer loan. It will also ensure no one has stolen the client's identity. The Fair Credit Reporting Act (FCRA) requires each of the nationwide consumer reporting companies to provide consumers with a free copy of their credit report, upon request, once every 12 months. A free annual credit report may be ordered online at or you may call one of the following credit agencies: Equifax (800.685.1111), Experian (888.397.3742), or TransUnion (800.916.8800).
  3. Examine all insurance policies. This is especially important after key life events such as marriage, divorce or the birth of a child. Discuss with the client how these and other events may affect the policies. Examples of common policies to review are life insurance, disability insurance and personal property, automobile and home insurance. They should also consider a personal umbrella policy. Pay particular attention to the type and amount of coverage they have, the limits on their policies, along with any applicable beneficiary designations.
  4. Check Social Security benefits. Annually review their Personal Earnings and Benefit Estimate Statement (PEBES), which is a breakdown of wages earned and Social Security tax paid into the program. A client can request a copy of their PEBES from the Social Security Administration at or by calling 800.772.1213.

Make Financial Plans

After completing this annual financial review, use this information to formulate short and long tern financial plans, such as reducing debt, financing a college education and planning for retirement.

Written by David Heilich, CPA, a tax manager with Brown Smith Wallace's Family Wealth Planning Practice. His responsibilities include assisting with the growth of that practice and providing expertise on various individual, partnership, estate, gift, and trust related issues, to the tax and accounting services group. David can be reached at 314.983.1273 or email [email protected].


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