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Blog: Can We Have Some Order Here?
Staying On Top Of Financial Records

Financial documents seem to frustrate and confound people more than any other kind of paper. It's hard to know how to handle each piece, how long to keep it, or the best way to store it. And, the consequences can be much more severe if you make the wrong choice than with, say, an article clipping. So here are some simple guidelines to follow when dealing with your personal financial paperwork.

Deal With It Before You File It

I can't tell you how many clients I meet who stick bills and statements (and sometimes even tax notices) in a file drawer without ever having even opened the envelope. The most common excuse I hear is, "It's just a monthly bill. It's routine." Never make assumptions about paperwork of the monetary kind! One woman I worked with discovered she had squirreled away a $3,000 refund check from the IRS she could have cashed two years earlier (I should have charged a finder's fee!) The first rule of thumb with any financial document is always look at it before you file it -- you never know when there might be a problem that requires your immediate attention. Even if it isn't something serious enough to send you to jail, you could be losing money because of clerical errors that you missed when you didn't read your credit card statement or utility bill. And you have a limited time in which to resolve a dispute, usually 60 days -- so it is important to take care of these issues in a timely manner. I know it's a pain, but you have to open every envelope and look at every financial document you receive every month. If you're getting too many statements to be able to do that in a reasonable amount of time, you either need to simplify your finances, consolidate accounts, or hire someone to do it for you!

In a perfect world, reconciling your financial papers is a simple 3-step process. First you store your monthly receipts and statements an action file or poly envelope labeled "to reconcile" (you can have one for receipts and one for statements, or one for banking and one for investments, or one for personal and one for business -- whatever makes sense to you.) Then once a month, sit down to compare the two. Mark off each purchase, every ATM withdrawal, all your deposits, and double check for errors. Then file the statements and monthly bills (in a physical folder if you get a paper copy, or on your computer if you receive your bill electronically) and receipts that matter (we'll discuss what those are in a second) -- while setting aside any items that require further action (such as purchases you need to return or charges you have to dispute.)

Now just because I used the word "file," that doesn't mean you have to keep any and every receipt in your wallet. Once ATM transactions and deposits have been verified on your bank statement, those receipts can be shredded. Receipts for piddly purchases like groceries or a magazine or a fast food lunch can hit the road as well -- as long as they aren't being used to support a tax deduction. When you're not sure if it's important enough to keep, ask yourself whether proof that you bought a 79-cent candy bar will matter to you or anyone else a year down the road. Really, what you want to hang on to are receipts for major purchases (where you might need to invoke a warranty or prove the item's value to your insurance company) and items that might be relevant on your taxes (business expenses, health care costs if you have an HSA or take a medical deduction, charitable donations, etc.) Receipts for major purchases should be stapled to the warranty or instruction manual and stored in a permanent location -- like hanging files or a classification folder with pocket dividers for each type of purchase (furniture, electronics, appliances, etc.) -- while tax-related info goes in it's own section of your file drawer, ready and waiting for April 15th to arrive.

Protect And Store

So what's the best way to store all this mess once you're done with it? Honestly, there is no hard and fast rule -- part of making financial documents less scary is organizing them in a way that makes sense to your brain, and that might be very different from how my brain works. I suggest storing regular bills and statements either by the month or by the account (your preference) -- and it's definitely easier when you arrange documents in chronological order within each file so they are easier to find later on. But frankly, if it's more intuitive for you to set up folders labeled "why I earn a paycheck" (for bills) and "things that keep me out of jail" (for tax records), and you can find what a piece of paper easily when you need it, there's nothing wrong with that!

Now there's the question of how long to keep each item. The general rule of thumb for bank and credit card statements (that are not tax-related) is 1-3 years, depending on your comfort level -- and if you still receive your canceled checks back instead of a photocopy, keep those in a separate check file to save space in your drawer. Paperwork relating to utility bills and other regular monthly personal expenses is really only useful for about a year, although you should keep statements for ongoing long-term payments like mortgages and cars for the life of the loan. I personally find it easier to just receive all of my statements electronically and store them in virtual "folders" on my computer by year -- that way, they take up no room and I can always refer back to any previous year with a click of a mouse.

But investment accounts are a different matter. Hang on to your monthly updates until you get the annual summary statement -- then you can shred all of the monthlies and file the summary in your permanent investment folder/binder/accordion. If you have many different accounts, it's a good idea to set up one binder per account or brokerage house (you'll end up with a fair bit of paper by the end of your financial life!) Your binder should also contain all trade confirmations for that account -- showing the cost basis for each buy or sell. Keep these items for as long as you have that investment -- you may be asked to produce them when you finally cash everything in, to determine if you owe any taxes.

read the original post of this blog

posted on: 10/13/2011 11:30:00 AM by Ramona Creel
category: General Organizing Tips

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Can We Have Some Order Here?

by Ramona Creel

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About Ramona:

I have been a Professional Organizer for more than 10 years, I am a NAPO Golden Circle member, and I was the original founder of OnlineOrganizing. I have worked one-on-one with scores of clients and have trained dozens of newbie organizers as they got started in the industry. I provide both hands-on and virtual coaching to help clients improve their organizing skills and simplify their lives. I invite you to visit my website at http://www.RamonaCreel.com, and I challenge you to find one new idea that you can put into practice in your life, to help you become better organized, starting TODAY! I am passionate about coaching folks toward a more balanced, productive, and enjoyable life -- and I firmly believe that if I can do it, so can you!

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