You probably know that I like to keep things simple. As simple as possible.
I also like to keep things pretty organized because nothing infuriates me more than time wasted looking for something. It’s the tangible cost you pay for not having a system in place.
This is especially true for things you don’t need often because you can’t rely on your memory to recall where things are. Financial documents fit into that bucket perfectly.
After years of adjusting and re-adjusting, I’ve come up with an organizational system for our documents that works. It’s also pretty simple.
Here are my two (ok, technically three) rules for every piece of paper:
- Digitize everything
- Keep the original if it government-issued, notarized, personal property, tax or loan-related.
- (Shred the rest)
Table of Contents
How to Organize It All The First Time
If you’re starting from scratch, I invite you to read this article by the archiving professions, the Library of Congress. I try to keep in mind some of the strategies used by the Library of Congress. They archive a LOT of stuff. Like everything.
You’ll notice that their advice doesn’t prescribe any specific steps or technologies, that’s why I share my approach in a moment, but their general approach is rock solid. This idea from the article is pure gold — “Don’t get sidetracked. Resist the temptation to savor any one thing right now.” (so easy to do, especially on personal archiving)
The key ideas are to attack your documents as one unit with a series of “clumps.” Thinking about it as one unit makes it less daunting. Attacking clumps breaks it down into manageable pieces that you can do over a series of days, weeks, or months.
When I started organizing, I took my logical “clumps” and turned them into folders. I took all the Car documents and scanned those first, putting the files into the appropriate folder. I shred the originals that I didn’t need to keep and kept the rest in the boxes. Then I did the other car.
The next day I went through my banking documents for our primary bank account. I didn’t need to do every document in a single day, I wasn’t willing to devote that level of time to it, but I was willing to spend 20-30 minutes filling up one folder.
It took about a month of on and off digitizing, but ever since then, the maintenance is fairly routine. I batch scan documents every quarter or so, which doesn’t amount to many papers because I get most things digitally now.
And my categorizations (or clumps) may not match yours. One good way to think about it is how you organize an In-Case-Of Emergency binder, which will contain a lot of these important documents anyway.
Every important piece of paper that comes into the house is digital. If I can, I sign up for paperless statements because then I can directly download the statements without doing the work of scanning it.
Digitizing isn’t the hard part, organizing it in a series of folders is the hard part.
Here’s our folder structure:
- Business Documents
- Personal Documents
- Individual – Me
- Individual – Lovely Wife
- Individual – Kid 1
- Individual – Kid 2
- Asset – House
- Asset – Car V
- Asset – Car H
- Financial Planner
I organize our files based on the person or asset and then whether it’s financial, legal, or other – those categories are communal to the family. I may do the taxes or manage the investments, but they’re family assets and so fall under the broader category.
The Individual contain documents specific to the individual, like medical records.
Archive is a catch-all for documents we no longer need, like the folder to Asset – Car C after we sold the Toyota Celica. It’s been years since we had the car so I could delete the whole folder if necessary but given how cheap storage is… eh, why both.
Shred the Original if…
Digitizing a document means I no longer need the original, with a few exceptions. My general rule is that if its government-issued, notarized, covers property, taxes, or loans then keep it. You can shred everything else.
If you find yourself with a lot of paper, and you like more complicated rules, here are a few rules of thumb for what physical paper to shred and what to keep (remember, you still have digital copies of everything, just in case):
- SHRED Anything you get monthly – bank statements, credit card statements, utility bills, etc. – when you get the next one
- KEEP Loan documents (especially the confirmation) for a year after you pay it off.
- KEEP Tax returns and supporting documents for 7 years after you filed.
- KEEP Documents related to an asset (car, house, etc.) for as long as you own it.
- KEEP Government-issued documents, like birth and death certificates, marriage licenses, – forever
- KEEP Anything you believe would be hard to replace.
Storing the Documents
Find a nice safe place in your house, install a fire-safe, and stick your documents in the safe.
The safe you get at the office supply store can probably be cracked in five seconds with a magnet, so don’t rely on it for security (or hide it really well and rely on security through obscurity!). You want it for the fire protection so hide it, preferably behind a painting on the wall. 🙂
For the digital copies, be sure to have them backed up somewhere, preferably automatically and in two places just in case. We store our documents on a portable hard drive, which is itself backed up remotely.
If you don’t want to store them locally, or you want multiple people to be able to access the documents (a portable hard drive isn’t ideal), you can opt for something like a Dropbox.
Once you do this, you’ll love how light and airy your financial documents will seem. 🙂
What are your strategies for preserving and organizing your financial documents? I’m always looking to improve our process so I’d love to hear yours.