Let's face it—organizing your finances can be a real chore. Every month, you get sent dozens of statements, bills, and other financial documents in the mail and online. It can be overwhelming. The good news is that there's a way to get organized that's amazingly easy and relatively painless—a system that allows you to find your bills and important documents quickly and without worry.
I first developed my file folder system back in the 1990s, and it's one of the top things my readers thank me for. That's probably because it is one of the few things you can do in less than an hour at home to fix and secure your financial life. Many people—maybe you're one of them—waste literally hundreds and sometimes thousands of dollars a year paying late fees, interest fees, and penalty fees because they can't find their bills in a pile of other financial "stuff" and, as a result, miss their payment deadlines.
Of course, times change and our needs change with them. So I have taken the Finish Rich File Folder system that I've described in my previous books and updated it for the current economic environment.
What hasn't changed is that it is still simple and you can still set it up at home in less than an hour. Here's what you do: First, get yourself 15 or so hanging folders and a box of at least 50 file folders to put inside them. Then label the hanging folders as follows:
The Finish Rich Tax File Folder System
1. "Tax Returns." This hanging folder should contain four file folders, one for each of the last three years plus one for the current year. Mark the year on each folder's tab and put into it all of that year's important tax documents, such as W-2 forms, 1099s, receipts to support deductions or credits, and (most important) a copy of all the tax returns you filed for that year. Generally speaking, you don't need to keep tax records for more than three years, although some documents—such as records relating to a home purchase or sale, stock transactions, retirement accounts, and business or rental property—should be kept longer. I keep all my tax documents for at least seven years, but that's an individual decision. 2. "Retirement Accounts." All of your retirement account statements go here. You should create a file for each retirement account that you and your partner have. If you have three IRAs and a 401(k) plan, then you should have a separate file for each. The most important documents to file are the quarterly statements. If you have a company retirement account, you should also definitely keep your sign-up package, because it lists the investment options you have—something you should review at least once a year. You don't need to keep the prospectuses that the mutual-fund companies mail you each quarter.
3. "Social Security." Keep your most recent Social Security Benefits Statement in this folder. If you haven't received a statement in the mail in the last 12 months, request one by going online to www.ssa.gov or telephoning the Social Security Administration toll-free at (800) 772-1213.
4. "Investment Accounts." This folder is for every statement you receive related to any investments you may have (mutual funds, stocks, bonds, etc.) that are not in a retirement account. Prepare a separate file folder for every brokerage account you maintain.
5. "Savings and Checking Accounts." Keep your monthly bank statements here, with a separate file folder for each account. Generally speaking, you don't need to keep bank statements for more than a few months—certainly not more than a year. If you get your statement online, print out a copy and stick it in the file.
6. "Household Accounts." If you own your own home, this hanging folder should contain the following files:
"House Title," for documents such as title reports and title insurance policies. (If you can't find this stuff, call your real estate agent or title company.)
"Home Improvements," for all your receipts for any home-improvement work you do. (Since home improvement expenses can be added to the cost basis of your house when you sell it, which means a bigger tax deduction for you, you should keep these receipts for as long as you own your house.)
"Home Mortgage," for all your mortgage statements. (Which you should check regularly, since mortgage companies often don't credit you properly.) If you're a renter, this folder should contain your lease, the receipt for your security deposit, and the receipts or canceled checks for your rental payments.
7. "Credit Card DEBT." Make sure you capitalize the word "DEBT" so it stands out and bothers you every time you see it. I'm not kidding. In my view, credit card debt is the biggest problem facing American consumers today. In Step 3, I will lay out a detailed plan for how you can pay down your debt as responsibly and quickly as possible. Right now simply create the folders—a separate one for each credit account you have—and keep your monthly statements in them.
8. "DOLP™ Worksheet." DOLP stands for "Dead On Last Payment." This is the system for paying down debt that I have taught for nearly a decade. I will explain exactly how it works in Step 3. (You can download the worksheet from www.FinishRich.com/DOLP.)
9. "Credit Scores." This folder is for your most recent credit scores, along with the credit reports on which they are based.
10. "Other Liabilities." This is where you keep all your records dealing with debts other than your mortgage and your credit card accounts. These would include college loans, car loans, personal loans, etc. Each debt should have its own file folder, which should contain the loan note and your payment records.
11. "Insurance." Make separate file folders for each of your insurance policies, including health, life, automobile, homeowner's or renter's, disability, long-term care, and so on. Each of these folders should contain the appropriate policy and all the related payment records. If you have any employer provided insurance (e.g., medical coverage), include all the brochures and other informational material you've received from your company.
12. "Family Will or Trust." This should hold a copy of your most recent will or living trust, along with the business card of the attorney who drafted it.
13. "Children’s Accounts." If you have children, create a folder for all statements and other records pertaining to college savings accounts and any other investments you may have made on their behalf.
14. "Latte Factor®." Here is where you keep your Latte Factor worksheet . For some of you, this may be the most important folder you create.