Organizing Financial Records: Find Anything at a Moment's Notice

Having a system of organizing financial records allows you to keep vital information at your fingertips.

Have you ever been asked to provide a copy of your tax return as income verification and couldn't find it? Or worse yet, have you ever missed adding an important deduction because it slipped your mind only to you find the receipt after you submitted your return? We have a simple solution for you.

But first, some encouragement: A system for organizing your financial records does not have to be complicated or fancy to be extremely effective. Wait 'til you see the materials you'll need for ours. Also, don't feel like you have to go through boxes of old statements to get caught up on years and and year of filing. Just start today, and do what you can.

Okay, here goes. First, you will need to gather up a few things. I recommend getting seven (7) Rubbermaid storage containers with snap-on lids. These will be for categorizing the seven deadly sins. Just kidding. I will tell you in a minute. You will want to buy them all at the same time to be sure that they are all the same (so they will stack nicely--Rubbermaid changes their designs too often). The 2.5-3 gallon sizes are perfect.

You will also need a package of 3X5 lined index cards, an index card box (Rubbermaid makes these too--very inexpensive) with a set of alphabetized index card dividers (sold separately), a sharpie or other permanent marker, masking tape, manila or hanging file folders, whichever you prefer (this is assuming you have a filing cabinet, but if you don't, you can get a file box and use the manila style folders in the meantime), a box of 9X12 or 10X13 envelopes, a large shoebox, and a shredder (unless you live in the country, in which case a burn bin will do fine).

Once you have all of the above materials, it is time to get your system for organizing your financial records ready.

Stick an index card on each of the seven containers with masking tape. Write one year on each card starting with last year, and then go backwards six more years until each container is labeled for the last seven years of your financial life. You don't need to go and find things to put into these boxes at this time. Just know that they are there for now.

Next, take the remaining index cards and place them in the back of the index card box. If you want, you can put one card behind each alphabetical divider to start off with, but it is not necessary. On the front one card, write the numbers 1 through 50 . Place it at the very front of the box in front of the dividers. This will help you keep track of which numbers you have already used for your filing system.

Get out a manila folder and write "1- " on the tab. Put it into your filing cabinet or file box. Take out twelve more folders and write the name of each month of the year on the tabs. These will be used for the current year only, so you will only need one set of them. Put them in order, and place them in the box with the one you just numbered. This is getting exciting.

Then, take the shoes box and write "Receipts" on it. Boring, I know. I guess if you are crafty, you could decorate it or something. Mine is covered with construction paper because it actually began an alternate life as the body of a homemade guitar that my daughter brought home from music class one day. It is really not important what it looks like, as long as you keep it handy.

Get out a couple of the large envelopes. These are going to be used for collecting tax-related items from your home-based business if you have one, rental property expenses, medical bills, work-related travel, or anything else that you need to keep separated from the rest of your daily living expenses. Label them accordingly, and place them in the filing cabinet in the same area as the manila folders you just prepared.

Now you are ready to begin using your new system. Grab a stack of bills and other stuff that you have been putting off dealing with. Take the first bill and check to make sure that it has been paid. Then, place it into the folder labeled with whichever month the bill fall under. Go on to the next one and do likewise.

What about items that are not bills? Well, that is where the index card system comes in. Let's say it is some literature about a pest control company in your local area that you would like to hold onto just in case roach season is especially bad this year. Write the number "1" in the corner of the brochure and place it into the folder marked "1- ". Now think of at least two different headings by which the item might be classified. One may be "pest control". The other might be just "bugs". You can have more if you like, but I like to think of at least two. So now you can get a card to put behind the "P" and write "1 Pest control information". Get another card to put behind the "B" and write "1 Bugs info". Cross off the number 1 on the front card so that you don't use that number again.

If the next item were a list of baby shower ideas, you would write the number "2" in the corner of it and place it in the folder behind the pest control brochure. On the second line of the card you just put behind the "B", write "2 Baby shower ideas" directly under the "1 Bug info". Just as an example, you could do another one under "games" or even "showers" if you want. Or you could just leave it, since it would already be pretty easy to find under the original heading. Cross off the number 2 on the front card, and you're ready for the next piece.

When the "1- " folder gets full, fill in the missing end number on the tab and start a new file for the next number in the sequence. This was, you can file multiple items in each folder without worrying about their size. You don't even have to put something into a folder if it is too bulky. Just number it and put it next to the folder it would have gone into. Then start a new folder for the next number and so on.

This may seem like a bit of an extraneous tangent, but I have found that knowing what to do with the non-financial stuff helps me feel less stressed about keeping my financial records straight. It is all about knowing where everything is so that you can get on with your life.

Back to our bill filing. Once you have done a great job at keeping all of your bills filed according to month and placed your receipts in the "Receipts" box and your tax-related items in their respective large envelopes, it is a cinch to prepare your tax summary for your accountant come January.

Once that is done, all you have to is take oldest container and shred/burn everything inside. You no longer need it. It may not have anything in it if you just started. That is okay. Simply label it as the newest year and dump all of the bills from January through December out of the files into the container along with the "Receipts." Tax related items should stay in their respective envelopes for easy reference. Be sure to place a printout of your tax return in the container as well.

Hopefully after learning and using this system you will find that organizing financial records is a great way to start of each New Year from now on.

Return from Organizing Financial Records to Home Money Management