Wrestling the Paper Beast of Financial Organization

Now that the space where you handle your financial life is more organized, let’s tackle the paperwork that needs storing.

I always tell my clients that what works for me may not work for them, and there is no one right way to store files. My first words of advice regarding achieving overall financial organization is to be consistent with your filing system, whether it’s electronic or for actual paperwork. For example, if you use different kinds of labels for keeping electronic statements on your computer but it’s different than what you keep in your filing cabinet, you’re just making it harder on yourself. It’s like having to switch mental gears going from one system to the other. And, if you’re running a business out of your home office, you’ll want to keep separate files.

If I’m setting up a client’s files from scratch, here are the main categories I might create (in alphabetical order):

  • Bank Accounts
  • Business Expenses
  • Business Income
  • Children
  • Credit Cards
  • Employment Income
  • Household Related Expenses
  • Insurance
  • Investment
  • Legal
  • Medical
  • Pets
  • Vehicles

The key is to keep it simple. If the file gets full to overstuffed, it’s probably an indication you may need to some purging of old stuff.. or you need to break it down into a smaller category. If the file has one measly piece of paper, perhaps you’ve sliced your categories too thin. It’s a balance, one that’s personalized to your financial organization system. One little tip I’d like to share that’s made a huge difference for me; a friend who is a professional organizer suggested using a labeler for files. Replacing those file folder stickers with a neat label is a time saver. It also makes your files look neater and oh so organized! … a psychological boost if you’re wrestling the paper monster.

Storing Financial Records

Typically you only need one year’s worth of information at your fingertips. While there may be a few exceptions, think about the files you rarely access for historic information. For paper bank records, you really only need to keep for about a year, unless there is some income tax significance, in which case you should save those for 7 years. Otherwise, my advice is to shred it. Of course, consult with your tax professional or accountant for the timeframes right for your specific situation.

Another financial organization solution may be investing in a high-speed scanner like a Fujitsu ScanSnap. For under $300 you can quickly scan important documents and store them electronically. There are several services where you can save it on the cloud (like Dropbox). Don’t trust the cloud yet? No problem, you can still store it electronically on an external drive. Then store it offsite like a safe deposit box or a trusted friend’s home. It’ll be there if you need it, but it won’t be cluttering up your office filing system. More and more banks are discouraging the use of paper statements now, so I save mine as pdfs, which are stored on my computer in a file just for them, and backed up externally.

Of course there are some documents that you’ll need to keep forever, like birth and death certificates, passports, marriage licenses, etc. For homeowners, you’ll want to keep records of real estate purchases and sales, as well as receipts of any capital improvements as they may be used to determine your tax basis.

Next time we’ll discuss how to handle the ebb and flow of paperwork.

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