If your counters are cluttered with bank statements and bills and your personal financial records are a source of frustration, it may be time to give your paperwork processing system a scrub.
Any time is an opportune time to organize your financial records and establish a plan for managing the avalanche of account statements, policy notifications, mutual fund proxies, and sales receipts that create physical and psychological noise in your home.
Indeed, clutter creates stress.
Barbara Reich, a professional organizer in New York City, and author of "Secrets of an Organized Mom," said paper clutter not only creates anxiety, but also leads to waste.
“There is nothing better than seeing a clear desk,” she said. “You spend less time looking for things and you save money because you don’t buy products or services that you already have.”
By getting their financial paperwork under control, said Reich, consumers have more hours in the day to do what they love (work out, binge-TV) and are far more likely to pay bills on time, which strikes a fatal blow to the heart of avoidable late fees. (Learn more: Setting financial goals)
Plus, it counters the so-called snowball effect. “If you don’t pay your bill on time they keep sending it to you, so now instead of one bill you have four and then it takes more time to determine whether you paid it or not,” said Reich.
Perhaps the easiest place to begin your decluttering campaign is to request that all forms of communication from financial services companies (banks, brokerages, retirement plan administrators, etc.) and creditors be sent via email.
Most these days make it easy to go digital, which not only minimizes the amount of snail mail you need to sift through, but does the polar ice caps a solid as well.
Ask your employer to directly deposit your paychecks, cancel any accounts you no longer use, and consolidate credit card accounts and bank accounts where possible, said Reich.
While you are decluttering paperwork, you might also consider putting a stop to vendor catalogs and other junk mail you no longer wish to receive. Catalog Choice, a nonprofit group dedicated to eliminating junk mail, offers a free service for doing just that, as does the Direct Marketing Association, which offers its own online registry.)
Reich further recommends putting your bill paying on autopilot.
Most creditors, including utilities, car loan companies, insurance firms, health clubs, and mortgage companies, allow for automated payments directly from your checking account. And, they often keep records of your account transactions for several years, which spares you the trouble of having to save them. Added perk: Going digital helps to keep your financial records safe from fire, flood, and loss due to faulty filing.
1, 2, 3 filing system
No matter how committed you are to going green, however, you will no doubt still have paper mail to contend with—and plenty of it.
To manage the influx, you need to triage.
“I tell people to memorize the credit card they use the most because you can take care of smaller bills pretty quickly if you know your number off hand,” she said.
Everything else that requires action—filing, payment or follow-up—gets tossed into an inbox in a centralized location. (It’s temporary. Relax.)
That gives your paperwork a place to call home, so you won’t have to spend time later gathering bills off your home office desk, countertops, and bedside table.
Create a separate folder within your inbox for things that must be dealt with pronto and another for items that need to be filed away.
Then, designate one night of the week to work your way to the bottom of the pile, said Reich, noting you should never save paper records as a reminder to follow up with a phone call. Pay it, toss it, and put any follow-up action that may be needed on your to-do list. (Learn more: Budgeting basics)
If you prefer to cut the clutter in smaller doses every day, that works too, said Lianne Hofer, a professional organizer and founder of The Clutter Consultant in Charlotte, North Carolina.
“Some people like to address their incoming mail right away and others let it accumulate for a few days until they get around to it,” she said. “The trick is to find your sweet spot, because if you let it accumulate too long it feels overwhelming and you will avoid it.”
As with your inbox, the file system you use should be organized and sustainable.
Strategies differ, but Hofer prefers color-coded hanging folders labeled by each individual account.
A three-ring binder does the trick for less important bills that only need to be kept for a year or less, including utility bills, monthly mortgage statements, and credit card statements.
Keep it or toss it
Indeed, part of the challenge of managing the influx of financial records and decluttering papers is knowing what needs to be kept and for how long.
Consumer Reports suggests a simple system: Keep one file (think accordion) for records you will keep for less than a year, like your ATM, bank-deposit and credit card receipts until you reconcile them with your monthly statements. Then, shred anything you do not need for your tax return. Insurance policies and investment statements, it suggests, should be held until the new ones arrive.
Another file should contain papers you need to keep for a little longer—a year or more. That includes loan documents until the loan is paid off, the titles for your cars until you sell them, and any paperwork that shows the original purchase price (cost basis) of stocks, bonds or mutual funds you own until you sell them, so you can calculate your taxable gain (or loss).
A third file, Consumer Reports suggests, should be dedicated to items you must hold for seven years, namely tax returns and supporting documentation like receipts. The Internal Revenue Service can collect unpaid taxes or start legal proceedings for up to six years if you have underreported your gross income by more than 25 percent.
Finally, Consumer Reports suggests the most important documents, which are hard to replace and must be kept forever, be segregated and secured.
A fireproof safe or password-protected electronic file, it notes, may be sufficient for annual bank and investment statements, estate planning documents, pension information, insurance policies, pay stubs, tax documents, and your safe-deposit box inventory list.
But a safe-deposit box, it suggests, is a better choice for birth and death certificates, Social Security cards, passports, life-insurance documents, loan documents, marriage and divorce decrees, military discharge information, vehicle titles, and an inventory of your home’s contents (should you ever need to make an insurance claim).
Email financial records should be processed similarly, Reich said. Rather than saving them in your inbox, she suggests creating digital folders for all of your financial accounts and dragging them into the appropriate folders as soon as you read them.
To keep your bank statements and financial records readily available, she said, consider saving them as PDFs on your computer.
It takes a little time to transform your record keeping system, but the rewards are well worth the cost.
“We waste so much time and energy and get so incredibly frustrated when we can’t put our hands on things when we need them,” said Hofer. “Imagine how much calmer and more productive you can be when you have an organized system, and how much more free time you will have in your day.”
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This article was originally published in July 2018. It has been updated.