20 May, 2021

How To Organize Your Financial Records In 5 Easy Steps

How to Organize Your Financial Records in 5 Easy Steps
Written by: - Phil Baker

Junk mail takes no prisoners. The average household receives around 848 pieces of junk mail each year. The pileup of paperwork and unwanted letters can make important documents fall by the wayside. Are you struggling to keep your financial documents in one place? Read on to learn how to create a solid paperwork organization strategy to help keep your financial records in place.

5. Take Out the Trash

You can't keep all junk mail from coming but you can create a system that keeps it from taking over your kitchen countertop. Too much mail makes it difficult to locate important documents when they arrive. Sort mail weekly. It's an annoying chore but it will pay off in the end. Create three bins for junk, interesting offers, and documents to file. Each week sort the mail into these three bins.
Recycle junk mail, magazines and newspapers you don't plan to read. Open the financial documents you receive and review. Don't assume you know what's in the envelope. Financial statements often come in the same style of enveloped letters with action required. Leave any interesting offers or promotions you receive from credit card companies or other businesses.
Pursuing these can often take you on a new path of distraction. Avoid taking any action to respond until you've taken care of important documents first.

4. Sort By Company

Next, take the financial documents to a separate area and sort them based on the vendor. Create a filing system to store your documents using file folders or an expanding file carrier. Depending on the number of vendors you have, you might be able to use a simple expanding file to store your documents. These are ideal because they only hold a small amount of information.
This prevents you from forcing too much information into a file causing it to become overfull. Overfull file folders become a new mess. Expanding files tuck neatly beneath a desk or on a kitchen countertop. Label each file tab clearly for easy retrieval. If you don't have the best handwriting, print your file folder labels so they look neat.

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3. Sort One-Time Versus Ongoing

Sort mail from each vendor by recurring bills and statements versus one-time communication. Some financial documents are for information only. For example, your bank changes the rules on future payouts on a Certificate of Deposit you own. You may want to keep this for your records, but it doesn't need to take up unnecessary space. Scan all information-only mail to be stored in the cloud.
Use a cloud-based storage service like Dropbox or Gmail to keep your documents secure. Create folders for each vendor just like with your physical folders. This makes the content easy to search in case you need to access a letter quickly. Working in the cloud is great for reference material because there's no guilt over the amount of space you take up.
If you find a one-time bill, keep this document at the front of the file folder until it gets paid. Make notes on your calendar or refrigerator to pay the bill by the requested date. Keeping it close to the front of the file folder makes it easy to retrieve at a later date.

2. Add Sticky Notes

Use a color-coded filing system to help you remember your actions on bills and other financial documents. Some statements, like property taxes, give you options on how to pay. You might choose to pay it all upfront or the amount will roll over onto your mortgage. Add a sticky note with the current date and your decision about the bill.
If you paid it, add the check number and amount paid on the sticky note. Tape the sticky note to the top right corner. Repeat this process for all bills received. If there's a problem that requires a phone call to the vendor, add sticky notes to track your conversations. Include the name of the person you spoke with and steps to follow up. Write down any confirmation numbers given by representatives over the phone.
Each time you call the vendor back you'll have the documentation needed to speed up the customer service call. Trying to retrace your steps with a new representative creates frustration that will encourage you to put off calls when resolving conflict in the future.

1. Find Long Term Storage

Storing documents in the cloud or on a hard drive is a great option for low-priority financial documents. Keep in mind though that the documents required in an IRS audit should be kept in physical form. If you own a home-based business, you'll also need to keep copies of utility statements and other bills you write off. Invest in a filing cabinet to store these financial documents long-term.
Keep tax-related documents for a minimum of 7 years. Toss out old bank statements at the end of every year after you file your tax return. There are situations where you need proof of income like 1099s and W-2s to qualify for programs. Keep proof of income information on hand for 3 years. Filing cabinets need not take up an entire wall in your room.
Small two-drawer filing cabinets can hold dozens of file folders with ease and are usually enough.

Purging Financial Records

Getting rid of clutter is the key to keeping an organized system for financial documents. Unfortunately, a one-time clean will never be sufficient for keeping your system going. Unwanted documents and financial records need to be purged each year to avoid a pile-up. Always use a document shredder to get rid of old financial documents.
Tossing paperwork in the trash makes you vulnerable to potential identity theft. For more information on getting ready for tax season, check out our blog section for updates and more information.

For your reading pleasure, we also encourage you to get about some handy tips on how to simplify office processes and make the hiring process much more efficient as well as how to get rid of your tax debts quickly

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