How to Organize Your Financial Documents Like the Library of Congress

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:

  1. Digitize everything
  2. Keep the original if it government-issued, notarized, personal property, tax or loan-related.
  3. (Shred the rest)
Table of Contents
  1. How to Organize It All The First Time
  2. Digitize Everything
  3. Shred the Original if…
  4. Storing the Documents

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.

Digitize Everything

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
    • Archive
    • Individual – Me
    • Individual – Lovely Wife
    • Individual – Kid 1
    • Individual – Kid 2
    • Asset – House
    • Asset – Car V
    • Asset – Car H
    • Financial
      • Agreements
      • Banking
      • Credit
      • Financial Planner
      • Insurance
      • Investment
      • Taxes
    • Legal

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. πŸ™‚

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. πŸ™‚

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.

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About Jim Wang

Jim Wang is a forty-something father of four who is a frequent contributor to Forbes and Vanguard's Blog. He has also been fortunate to have appeared in the New York Times, Baltimore Sun, Entrepreneur, and Marketplace Money.

Jim has a B.S. in Computer Science and Economics from Carnegie Mellon University, an M.S. in Information Technology - Software Engineering from Carnegie Mellon University, as well as a Masters in Business Administration from Johns Hopkins University. His approach to personal finance is that of an engineer, breaking down complex subjects into bite-sized easily understood concepts that you can use in your daily life.

One of his favorite tools (here's my treasure chest of tools, everything I use) is Empower Personal Dashboard, which enables him to manage his finances in just 15-minutes each month. They also offer financial planning, such as a Retirement Planning Tool that can tell you if you're on track to retire when you want. It's free.

>> Read more articles by Jim

Opinions expressed here are the author's alone, not those of any bank or financial institution. This content has not been reviewed, approved or otherwise endorsed by any of these entities.

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8 years ago

This sounds like a clever system you have in place. We need to adopt your process sooner rather than later. Starting is always the hardest part!

“nothing infuriates me more than time wasted looking for something” Totally agree. This is why we have been decluttering. Having let stuff makes easier to find the missing stuff. πŸ™‚ I like the system. Other than the initial time to set up, it should be smooth sailing after that.

8 years ago

I JUST got my first shredder and I’m irrationally excited about it πŸ™‚

I like your system! Being organised helps me from getting stressed. The amount of times I see people struggling to find something and they are getting so stressed out!

8 years ago

Thanks for the LOC link. You can learn a lot from the best.

I also read Ezra”s article–I’m a big Vox.com fan. I think Ezra hit on something that even my favorite Vox writer, Matt Yglesias, missed when he wrote an article about a BUI–there is a stigma attached to “unearned” income. It’s unfortunate. However, I think as more people struggle to get by, they may start rethinking how they feel about basic universal income. They may start feeling entitled to something because they are willing but can’t find work or their wages are stagnant.

Melinda
8 years ago
Reply to  Jim Wang

I was wondering where we could discuss the subject of BUI. I read the article with great interest. I’m assuming the idea is that every citizen would recieve it, correct? Not just “the needy”? If so, why should there be any stigma attached to it? I think Alaska uses a similar concept on a smaller scale, don’t they? Where every state resident gets a certain amount paid back to them each year from the state government? Forgive me, I haven’t studied up on that subject; I’ve just heard bits and pieces, but I don’t believe there’s any stigma attached to… Read more »

Janie
8 years ago

Since I’m 86 years old, my system evolved before the days of digitizing. I have used it for years and it works for me. Basically broken down into 3 types: (1) Permanent keepers (my Will, birth certificate, marriage record, the Deed to house and title to car and any other permanent records go into the fire safe). (2) folders for insurance (house, life, medical) also appliances with warranty and manual (frig, washer, new air conditioner, etc) goes in the file cabinet. (Yes, I use a file cabinet.) 3) monthly folders: 16 months (paid receipts) Jan 20xx – May 20xx. Each… Read more »

Vickie
8 years ago

I pretty much follow the same system with one additional step. I maintain a binder with one (1) hard copy for each bank, credit card, auto loan and utility statement (preferably the year-end statement). That way if I my computer is down, or I need to take it with me, it’s mobile and easy to reference. Also, I think it will be handy for my kids in the event they need to manage my finances. I reference the binder in our estate plan that tells my kids where everything is, so they have a handy reference instead of digging through… Read more »

Melinda
8 years ago

Jim, I appreciate your description of how you went about digitizing in an incremental manner. It seems less overwhelming that way. I’ve noticed over the last 2-3 years that the majority of our documents are now coming to us in digital form, and I’ve started setting up files on my computer that correspond to those in our file drawer. I’m considering just letting the older paper files be, until it’s time to get rid of them, rather than spending all that time scanning them. Going forward, it will be fairly easy scan in the few hard copies that come in.… Read more »

Unimax
8 years ago

Any suggestions for a good scanner directly converts to PDF files?

Ally
7 years ago

This has been on my mind for the last few weeks! I like your method a lot and am too striving to go as paperless as possible. I think my system is relatively similar. I am still trying to figure out a few things and would love to get your thoughts: 1. What digital “filing cabinet” do you use to store your electronic files? Right now I just use the Windows Explorer function of my PC. 2. Backups – you mentioned you have a hard drive connected to the PC and the second backup is remote. What do you use… Read more »

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