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.
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. 🙂
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.
Believe Fire says
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!
That’s why I added a few recommendations from the LoC, they constantly have a ton to archive so taking a few tips from them can’t hurt!
Brian @debt discipline says
“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. 🙂 I like the system. Other than the initial time to set up, it should be smooth sailing after that.
Maintenance is also a big thing too, you have to keep your organization in check and not let everything become a “junk drawer.” Eventually clutter and chaos spreads like a virus (the universe trends towards entropy!) and you have to do a “big cleanup” instead of small maintenance steps to keep your system in order.
Stefanie O'Connell says
I JUST got my first shredder and I’m irrationally excited about it 🙂
Hahaha, there’s something very freeing about shredding documents. Your excitement is by no means irrational!
Francesca - From Pennies to Pounds says
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!
Exactly!
Every system evolves and your financial life evolves too as you age, so I suspect mine will adjust over time too.
Denise says
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.
Ah, Basic Universal Income (for those who don’t understand why the discussion moved here, it’s because it was a link in my weekly newsletter that also included this article), an interesting idea whose time will come soon I think.
As for the stigma, there will always be a stigma associated with anything similar but the people who really need it… I suspect they don’t care. Food stamps? There’s no pride when you’re struggling. You look for ways to get ahead and for folks who are in a situation where they can’t, there’s no shame in getting a helping hand.
Melinda says
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 their system, is there?
If such a system was universally applied on a national level, it would then come down to a personal choice of whether to be extremely frugal and try to live on it alone, or to work and have a higher standard of living. It’s an intriguing idea.
The only real problem I have with it is this: Where would the money actually come from? In Alaska, correct me if I’m wrong here – I believe it has something to do with the pipeline, does it not? Do we have a national asset that would provide enough profit to give a suitable sum back to every citizen? (Also, while we’re on the subject of citizens – how would the issue of illegal aliens be handled in this case?) If the money were to come straight out of taxes, would we be just paying in additional money, only to get it back again? Would some be paying in more than others, and what would this be based on? How would we assess the relative “fairness” or equity of that?
I’d love to explore this idea some more – it sounds so very Star Trek-ish” and futuristic, afterall, LOL! (I’m only partly joking – I’ve long thought sci-fi authors are some of the most forward-thinking, intelligent people on the planet). However, in order to have a true dialogue about this, we need some nuts and bolts here; some details the flesh the idea out.
I love it when the email newsletter spills onto the blog!
I’m not 100% educated on the subject but that might be a good excuse to do my due diligence, research it and write about it as its own blog post. It clearly has generated some discussion!
I don’t know where it would come from but many arguments I’ve read is that its meant to replace the existing social support system. Instead of a series of programs that have an administrative burden, it would be replaced with a single one that we assume would be more efficient.
As for the stigma, I stand by my belief that those who are struggling don’t give a damn about stigmas. Those that would take advantage would take advantage of the current system anyway.
It does feel very Star Trek-ish, which may be the appeal, but my feeling is that people have higher aspirations than to get a minimum payment and live life. Even if you were 100% money driven, a basic income wouldn’t get you the luxurious trappings of life – it’s more Honda than Rolls Royce.
Janie says
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 year after taxes are paid (Apr 15th) I lay out the Jan thru Dec monthly folders, remove contents and sort into stacks whatever may need to be kept to backup taxes for 7 years – receipts, bank statements, and put them in a box labeled with the year and stored away out of sight, but where you’ll always know where to find them. A small flat box like the folders come in from the office supply store does the job well. Because this isn’t done until after taxes are done, it creates the need for the extra 5 monthly folders for overlap. The folders are in my left hand desk drawer. Always convenient for filing away new paperwork or looking up recent info. Replace the now empty 12 months folders into the drawer for reuse in the coming months. (If you don’t have a desk with file drawer, use the file cabinet but it needs to be handy for daily use. Otherwise, you’ll put off the filing – out of sight, out of mind. The secret to success with this is to make it a priority; if not daily, at least keep everything filed at the same time you pay your bills.
More things that go in that file cabinet-group 2: I’ve learned that if you’ve had surgery or a serious medical condition that any paperwork concerning that needs to be kept even after you’re recovered. It is impossible to know what will come up in the future that will need access to those papers. So keep medical records, don’t rely on your doctor having them. Same advise if you’ve had a car accident. I even keep a folder for my dog’s vet records (separate from the monthly receipts). Keep separate file cabinet folders for contracts for cell phone, cable service, lease agreements, yard maintenance, termite control. And yes, a paper copy of your tax return with backup paperwork, each year in it’s own separate folder marked with year number.
So yes, that’s a lot of paper not digitized. So I’m set in my ways, but it IS organized!
Your system is great! I am a supporter of doing what works for you and it sounds like you have a well developed system where you know where everything is!
The only difference is that my system is searchable by computer. 🙂
Vickie says
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 my digital file for phone and account numbers. P.S. Love your articles!
A physical backup is a great idea, especially if you know it contains a relatively recent snapshot of everything.
I use a Word Doc I call a Money Field Manual to explain how my finances are laid out. If my wife, or kids, need to know what the heck things are – that doc has it all.
Melinda says
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. It’s those 2-3 years where our documents are about 50% digital and 50% paper that have been presenting a problem for me! Perhaps I will use your method for those.
I always enjoy reading your articles!
I like to digitize the important paper just in case they get damaged, by flood or fire, but I like your idea of letting some of that paper “expire” and save yourself the trouble of digitizing something you’d delete anyway.
There are few things as satisfying as shredding (or in my case, using it as kindling/firestarter for our fireplace) a lot of paper.
Unimax says
Any suggestions for a good scanner directly converts to PDF files?
I have a printer that does it so I’ve just used that.
Ally says
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 for that remote backup? If you use external/cloud solutions – any particular one you would recommend? My conservative self is still leary of 1)trusting my important docs – like the Money Field Manual to a “cloud” and 2)forking over annual fees for storage. I guess, it’s also important to automate the backup process – otherwise – I get behind
3. Monthly statements – i used to export and save my monthly bank statements, credit card statements, etc, etc. It got to be a daunting monthly task, so I would put it off and it only grew to be a monster task which got done twice a year :(. So then, in order to simplify, I just decided to stop. If I need them, I’ll just log-on and get them from the bank. Although that decision freed up time, I still struggle sometimes that I don’t own copies of important statements. Is this just a silly worry? What do you think?
4. Somewhat related to #1 above – some people use dropbox or evernote as their filing cabinets. Your thoughts?
5. Do you use any specific formulas for naming conventions? I don’t, so my car insurance folder has files named: July 2016 car insurance, Car Ins 1-1-16, Toyota 1 of 2… – therein lies the problem….
6. Somewhat on a tangent – I billions of digital photos. I haven’t done a good job of real time organizing them, so lots of them are sets of almost identical shots of my baby eating carrots. Now i have years of dumped photos sitting in my C: drive. Would hate to lose them. Do you have a good method you would recommend?
Thanks for the great post (and very relevant to me as you can see by the questions)!
Glad it resonated! Here are my answers:
1. I use an encrypted folder on a portable hard drive.
2. The drive itself is also backed up to the cloud.
3. I don’t ever download my statements, usually a company will keep them for a year or so (check their policy) and you can always request a paper one. It may or may not be silly but that doesn’t matter, do whatever gives you peace of mind.
4. I think they’re fine… I’d be worried the files could be accessed by someone else.
5. I try to keep it consistent, whatever makes it easier on me to remember the better. Use whatever formula you would intuitively name them, but make sure they are consistent. I always put the date at the front though so it sorts nicely by name.
6. Ha! I just solved this … kind of. I dump all the photos onto another portable hard drive but I also upload them to Google Photos so they’re searchable. You can pay to upload originals or get free storage if you let them shrink the photos (still pretty big).
The quality of the compressed files is still good. You can print 4×6 photos from those files and not really notice. 8×10 is noticeable but not “bad.” Anything bigger and you’ll want the originals.
Marisa says
OMG this is such a great idea. We have so many documents hanging around we are drowning in paperwork.