John J. Diak, CFP®
How to Get Financially Organized and Conquer Your Paper Piles
If you ever feel like you’re drowning in paper, you’re not alone. Whether on the kitchen table, corner of a desk, or shoved in a drawer, you’re likely to find a disorganized pile of bills, bank statements, receipts, and miscellaneous paperwork. Before you run it all through a shredder, take the time to get financially organized and conquer your paper piles once and for all.
If you are looking at a mountain of paperwork, you might be tempted to toss it in the trash, but doing so could cause problems down the road. Schedule some time to look at each document and sort them out. Get rid of what you don’t need and keep what you do need. Invest in a good shredder and simple storage solution. And create a system for keeping your financial paperwork organized from this point forward. It’s easier than you might think.
What to Shred
Start by gathering all of the piles of paper in your home. Check junk drawers, closets, and old file cabinets; you may as well get it all done at once. You’re bound to have plenty of junk mail, discarded notes, and old magazines in the mix. If it’s obvious trash that doesn’t have sensitive information on it, place it in the recycling bin or garbage can. Good riddance!
Next, look at the remaining pile and determine what papers are of no use to you. Do you need your water bill from three years ago? Do you need a credit card statement from last year? What about a tax record from two decades ago? Probably not.
As you review each piece of paper, ask yourself what would happen if you shredded it. If you needed to access the information for any reason, would you be able to get it elsewhere easily? Are digital records of older transactions accessible? If so, shred the paper.
Generally, it’s safe to shred most bills as soon as the payment clears. For larger purchases, hang on to the receipt in case you need to substantiate an insurance claim if it is ever damaged, lost, or stolen.
If you are a renter, you can shred your lease, rental agreements, and other paperwork once you’ve moved out of the property and the security deposit has been returned to you by the landlord.
In most cases, you can shred your credit card statement once you’ve checked it against your purchases each month and paid the balance. The exception would be if you’ve purchased something you will be claiming on your taxes; if so, keep the record for at least seven years.
If you get paid via direct deposit, you can feel free to shred your pay stubs right away. If you don’t get direct deposit, you can shred the stubs after you’ve reviewed them against your W-2 for the year.
Bank and investment statements older than a year can often go through the shredder, too, particularly if you can access them online. But, again, you’ll want to hold onto any records, such as canceled checks and securities transactions, that pertain to your tax returns.
What to Keep
The purpose of maintaining paper records should be to protect yourself and your assets. You need to be able to show proof of payment, ownership, and status if the need arises. If there is any possibility you could find yourself in a bind without having the document or record, hold onto it for backup. Following this rule of thumb will most likely whittle your piles down substantially.
Most experts advise that you consider keeping tax-related records, including tax returns and your supporting evidence, for at least seven years. This will cover you in case of an IRS audit or challenge. Check with your state tax office for information on their specific guidelines.
If you are a homeowner, it’s wise to keep all records related to the purchase, sale, and substantial improvements you make to the home while owning it for a minimum of seven years after selling the home. This is because you may need to access the records related to your taxes and possible capital gains.
If you’ve taken out a loan, such as a mortgage, student loan, or car loan, it’s smart to keep the records indefinitely. It’s not uncommon to be questioned whether or not the loan was actually paid and paid on time. Keep this paperwork on hand to back yourself up if necessary.
How to Store Your Financial Paperwork
When it comes to storing the financial paperwork you keep—both short-term and longer-term—it’s helpful to have a system and a process you can easily follow. Otherwise, your paper stacks will start to grow again before you know it.
The simpler and more convenient, the better. You might be tempted to designate a corner in the basement or the back of a closet, but these options are not best suited for the task. Plan to store your papers somewhere you can access easily, in a welcoming space where you won’t mind spending time checking your figures against electronic records, putting files away, and shredding unneeded documents.
An accordion file folder or small file cabinet should do the trick, considering you will be keeping far less paperwork than people needed to keep in the past. Avoid using binders, fasteners, or anything else that will slow down the filing process. You might think doing this will make your files seem neater or nicer, but it will only slow you down and serve as an obstacle to getting the work done.
Think about how you want to sort the papers into various files. Don’t overcomplicate it, and remember it only has to make sense to you and your spouse or partner. Some people prefer to sort things by month, and others prefer sorting by subject or category. Avoid using too many subcategories—the more folders, the more chances you have to hide something from yourself unintentionally. You can number your files, color code them, or label them—whatever makes it effortless for you to tell at a glance what is in the folder.
For your most important documents, such as birth certificates, marriage certificates, stock certificates, deeds, wills, and insurance policies, you may want to store them in a fireproof safe or safety deposit box. It’s also a good idea to scan critical documents like this and keep an electronic backup.
The best way to cut down on the work it takes to stay organized is to minimize the amount of paper that comes into your house in the first place. Plus, you’ll save some trees while you’re at it. When possible, switch to electronic statements only and pay your bills online; you can always print out backups if you want. You may also want to contact the Data & Marketing Association and the major consumer reporting companies to opt-out of unsolicited offers and mailers to reduce further the unneeded paperwork that comes into your home each month.
Once you know what to shred, what to keep, and where you will store your papers, stick with the plan. A great way to stay financially organized and maintain a clutter-free home is to tackle the papers as they trickle in before the piles have a chance to grow again.
Toss the junk mail as soon as it comes in the door and place all papers that require action on your part in one designated area. When you sit down to pay bills and check records, everything will be in one spot; do what needs to be done and then shred, recycle, or file right away.
The key is to avoid falling back into your habit of letting papers pile up. If you are unable to follow the system you create in real-time, that’s okay. Just make sure you schedule some time to get caught up and never let more than a couple of months pass before getting it all sorted out again.
John J. Diak, CFP® is the Principal & Client Wealth Manager at Oatley & Diak, LLC in Parker, Colorado. He assists clients through many difficult lifestyle changes such as business downturns, retirement planning, divorce, the death of a spouse, and family estate issues among others. Oatley & Diak, LLC is a family-run registered investment advisory (RIA) firm that provides clients with investment management and financial planning services in a hands-on, intimate environment. Learn more about them at oatleydiak.com.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
This material was prepared by Crystal Marketing Solutions, LLC, and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate and is intended merely for educational purposes, not as advice.