How to create a system to organize your bills, statements, policies, and other financial paperwork.
Psst. Hey you. You with the big stack of unopened retirement statements on your desk. That’s right, I see those piles of insurance paperwork stashed in drawers and in corners. And don’t even get me started on that grocery bag of old bills you don’t know what to do with.
If that sounds like you, or if you’re embarrassed by the state of your financial documents, this post is for you.
Financial organization can be a terrifying exercise, but it is a cornerstone of a healthy financial life. At the most basic level, financial organization saves time and money because it aids in paying bills on time, finding needed documents during tax season, providing proof of payment, disputing credit cards or billing errors, and avoiding the stress of dealing with piles of unorganized bills and paperwork.
It also sets the stage for better decisions on investments, budgeting, debt, and investment planning. Financial organization helps your working relationship with your financial advisor because there will be less time spent looking for paperwork and more clarity around the overall financial situation, leading to more informed decisions about your investments and financial plans (trust me on this one in particular!).
Finally, if you share finances with a partner or spouse, clearly establishing responsibilities for financial matters is an important priority. If one partner manages the finances, the other partner should be informed about what is going on financially, where important documents are stored, and the passwords for all online accounts. Getting organized makes things way easier in the event of an emergency.
So how do I even get started with this hellscape of organizational labor?
I like to start by thinking about the broadest categories of financial documents out there. For me, this includes:
- Retirement savings
- Bank and investment accounts
- Credit cards and loans
- College savings (if relevant)
- Estate planning
- Miscellaneous other documents
Starting with a set number of categories is useful for me because when I’m going through my unopened envelopes and sorting through papers, I can put them in piles (or better yet, files!) that match those categories. If you’re dealing with electronic versions of documents, consider starting one digital folder for all your financial paperwork (no joke, mine is called Boring Adult Things), with sub-folders for each of these categories.
Don’t overthink this–while having a system to organize financial paperwork is important, it is not so important which system is followed but that a system exists. In other words, paper, electronic, or a combination of electronic and paper filing systems will do the trick.
What papers should I keep for each category?
What documents to keep and what to toss is another important part of becoming better organized. The IRS recommends retaining tax returns and any documents that support tax returns for seven years. Other documents such as paper bank statements, investment account statements, and credit card statements can be shredded after a year, especially if they can be accessed online in the future if necessary.
So let’s take a look at what specific documents you need to keep on hand in each of the categories listed above.
Retirement is the largest financial goal for most investors. As such, it’s very important to keep track of all retirement accounts, including 401(k)s from current and previous jobs, traditional and Roth IRAs, and other accounts such as 457 plans.
- Account statements and summary plan descriptions for all employer-sponsored retirement plans
- IRA account statements
- Social Security Personal Earnings and Benefits Estimate Statement
- Account statements for all assets. (See Investment Planning)
- A budget showing expected living expenses in retirement
- Employee benefits information on health and retirement benefits
- Veterans administration record
Bank and Investment Accounts
These are other common investor accounts which you may or may not have. Keep policies, statements, and other important paperwork for these accounts accessible to help you and your advisor develop an investment strategy.
- Checking accounts
- Savings accounts
- Money market accounts
- Certificates of deposit
- Brokerage accounts
- Mutual funds
- Employee stock purchase plans or stock options
- Individual stocks, bonds, or real estate
- Precious metals or other collectibles
Credit and Debt Planning
Debt is often a significant part of an overall financial picture. Statements for loans will help get a handle on your level of debt, interest rate of that debt, and loan terms on these kinds of revolving and installment credit debt.
- Credit cards
- Auto loans
- Student loans
- Business Loans
- Personal loans
- The most recent copy of your credit report
Risk management includes life, auto, disability, health, and other coverage you may need as well as current or future Social Security benefits. To manage and periodically reevaluate coverage levels, deductibles, and premiums, retain these documents, including employer-sponsored insurance.
- Life insurance
- Disability insurance
- Health insurance
- Homeowner’s or renter’s insurance
- Automobile insurance
- General liability (umbrella policy)
- Professional liability
- Long-term care
- Social Security Personal Earnings and Benefits Estimate Statement (PEBES) showing survivor and disability benefits
Income Tax Planning
Tax planning is a forward-looking process that identifies strategies designed to reduce future income taxes. Note that income tax planning is not the same as income tax preparation, which focuses on documents required by the IRS. For income tax preparation, consult with your tax advisor.
A variety of documents are required to prepare taxes and assess your tax situation. Keeping proper tax records is extremely important for IRS, accounting, and investment purposes. Tax documents that should be safely stored and easily accessed include:
- Tax returns for the last 3 years
- Retirement plan information showing the amount you are eligible to contribute
- Paycheck stubs or statements showing regular income and unusual taxable distributions that may change your tax picture this year
- Statements showing major deductions, such as mortgage interest and property taxes
- Statements or other documentation showing the cost basis and current value of assets owned outside retirement accounts
- Information on charitable contributions
College planning is vital for parents. There are many types of college savings vehicles, so be sure to keep track of all accounts with funds saved by parents, grandparents, aunts, uncles, and other relatives. To stay on top of balances and track savings, these statements are useful:
- Statements of accounts earmarked for college (529 plans, Coverdell accounts, UGMA/UTMA accounts, accounts in parents’ names earmarked for college)
- Completed FAFSA (Free Application for Federal Student Aid) for students already enrolled or preparing to enroll in college
- Other documentation relating to student loans
There are two key aspects to estate planning: wealth transfer (ensuring that assets are transferred to the right people) and estate tax savings. Planning for and monitoring your estate requires maintaining these records, including:
- A copy of your latest will and letter of instructions
- Index of all assets (see list under Investment Planning. Also includes real estate, business interests, etc.)
- Trust documents
- Advance directives
- Power of attorney for health care
- Power of attorney for financial matters
- Prenuptial agreements
- Beneficiary designations for IRAs, life insurance, annuities, employer-sponsored retirement plans
- Statements or deeds of trust showing how assets are titled
- Pet care
There are also many other important documents that fall into a catch-all miscellaneous documents category. These include everything from a Social Security card to military service records to adoption and divorce paperwork. Keep the list current by adding new documents as appropriate.
- Birth, death, and marriage certificates
- Social Security card
- Vaccination records
- Military service records
- Deeds and titles to all real estate, autos, and other hard assets
- Adoption papers
- Divorce papers
- Prenuptial agreement
- Religious ceremonies such as baptism, confirmation, ordination, marriage, annulment paperwork
- Jewelry appraisal list for all items valued at more than $500
Getting your financial papers organized isn’t fun for most of us (unless you’re a big ole’ nerd like me!), but it is massively important. So grab a glass of wine and those papers and file folders that have been gathering dust, and hop to it! And of course, you know where to find me if you have any questions during the process 🙂