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The Error-Proof Portfolio: What to Stash, What to Trash

How to create a filing system for financial paperwork.

Are your financial files stuffed with marketing literature, prospectuses, and empty envelopes? Is your desk cluttered with 401(k) statements that date back to the Bush administration--ahem, the first Bush administration? If so, you probably need some coaching on what to save and what to throw out. The following, an excerpt from my book30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances, discusses how to create a filing system for your financial paperwork.

One of my longtime co-workers is, without a doubt, the most organized person I've ever known. With the exception of a couple of snapshots of her kids, her desk is so clean and clutter-free that it might as well belong to an intern. And while many of us shipped several huge boxes of documents to Morningstar's new office when we moved in December 2008, Bridget sent just a few.

So, what's her secret? Like all truly organized people, she never has to put "get organized" on her to-do list. When it comes to paperwork, she deals with it as soon as she puts her hands on it rather than setting it in a "deal with this later" pile. She either takes action with the item--by reading it or forwarding it--files it, recycles it, or shreds it. That's precisely the strategy that you should use to stay on top of your financial paperwork.

Technology can be your friend when it comes to reducing clutter and staying organized. Most financial-services providers will give you the option to receive your statements electronically. Not only is that the green alternative, but it also reduces the amount of paper    . And for those documents that you'd like to save, you can scan them and store them on your computer rather than having to find a home for a piece of paper. As we all become more comfortable with technology, I expect that households will save less and less financial paperwork.

The specific system you use for organizing your financial paperwork is a matter of personal preference. What's crucial, though, is that you store truly important documents in a safe place, such as a safe-deposit box at your bank or a fireproof box that you keep in your home. You'll also want to set up some storage at home, either physical or electronic, to keep other documents, such as financial statements related to the current tax year. Finally, you need to destroy sensitive documents and make sure that someone other than you is able to locate your important documents in a pinch.

You'll find that there's a lot of conflicting advice on what to save, toss/recycle, and shred. If you needed to, you could very likely find duplicates for some of the items that I've suggested you save at home or in your safe-deposit box. I have tended to err on the side of caution with my advice.

To create a filing system, you'll need:

  • A shredder
  • A filing cabinet or file box
  • File folders and file labels (accordion-type files work well for large files)
  • A safe-deposit box at your local bank and/or an in-home fireproof box

Start the Clock
Step 1
Print out the "Save, Shred, or Recycle?" guidelines and refer to them frequently as you deal with the paperwork in your home office.

Step 2
Create files (either physical or electronic) for your in-home storage. You can also create subfolders within these files. Just be careful not to create so many individual files that you begin questioning where something is stored. The following categories will make sense for most households.

  • Home (can include home repair/upgrade receipts, property tax bills, and so on)
  • Warranties and owners manuals (can be combined with "Home Improvements" documents in an accordion file)
  • Auto
  • Current Tax Year (store receipts, charitable receipts, canceled checks, and bills related to the current tax year)
  • Investment Statements (you'll probably want to create a separate file for each individual provider or account type--for example, "College Savings" and "Retirement Savings")
  • Bank Statements
  • Estate Documents

Step 3
Gather the following items and plan to put them in your safe-deposit box or fireproof box, if they're not in there already. If you suspect you'd have a hard time replacing a document, your safe-deposit box or fireproof box is probably the right place for it.

  • Certificates of birth, death, marriage, and adoption
  • Social Security card (Get it out of your wallet!)
  • Deeds
  • Car titles
  • An inventory--either written or video--of your household possessions, especially electronics, expensive appliances, collectibles, and jewelry
  • Tax returns for the past seven years, as well as any receipts, statements, and other documents that relate to those returns
  • Insurance policies
  • Copies of estate documents such as wills, trusts, and powers of attorney (and keep additional copies with your estate-planning attorney and in a safe place at home)
  • Contracts
  • Important medical records

Next Steps

  • The information provided here will help you set up a system for dealing with your paperwork, but if you have a big backlog of unfiled papers, it's going to take you more than 30 minutes to get them all filed in the right spot. Plan to do it in stages rather than tackling this task all in one go.
  • The files I outlined in Step 2 will apply to most households. However, you will probably want to customize your filing categories based on your own household--for example, if you have a child in college, you will want to set up a separate file to stash college-related financial paperwork.
  • Once you've set up a filing system, get in the habit of dealing with your mail as soon as it arrives. Put it along with other bills to be paid, file it, shred it, or recycle it.

Excerpted with permission of the publisher John Wiley & Sons, Inc. from 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances. Copyright (c) MMX by Morningstar Inc.

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