I’m one of those strange people who actually enjoys cleaning out closets. There’s something about the process of taking everything out, throwing it into a pile, and then slowly going back through it and deciding what to keep and what to toss that is cathartic. And so I look forward to the ritual this time of year, when promises of warmer weather light a fire under my disorganization.
I also know, both anecdotally and from research (according to napo.net), that disorganization costs real dollars and cents. Twenty-three percent of adults say they pay bills late — triggering fees and possibly a ding to their credit score — because they lose them. The average American spends 55 minutes a day looking for things they can’t find. That’s real time — nearly 12 weeks a year — that you can’t get back. It could be spent with your family, with your friends, or at work, billing hours to clients or putting in face time so you’re at the top of the promotion list.
So consider this your chance to clean up your act. I’m going to quickly go through a few tips that will help you streamline your financial life, saving you precious time and money.
- Get it together. I approach organizing my paperwork the same way I approach cleaning out my closet. I start by running around and collecting bits and pieces from the various places they’ve landed over the last few months — the table by the door, my mail pile, my desk and drawers, the bottom of various handbags, a disorganized filing cabinet…the list goes on. Once I have it all together, I start sorting into three piles: shred, pay, and file. I toss envelopes and spread out statements and bills flat. I pay bills as I come across them, keeping my laptop handy for the ones that can be paid online. And I make sure I have a stack of file folders on hand so I can make new categories as needed. Generally, I file into the following categories: healthcare/insurance, saving/investing, income/taxes, credit cards/debt and home/auto.
- Know what to keep and what to toss. Here’s a rule of thumb: If you can get access to the information again, it’s okay to shred. That means bank statements and credit card statements can generally be shredded, because you can always download them again from your bank’s website. Credit card solicitations, marketing mailers and other junk mail can also be shredded immediately. Hang on to receipts for a month (longer if it’s a big-ticket item, you need it for a rebate or warranty, or you’re planning to deduct the expense on your taxes) and keep utility statements, pay stubs, and Social Security statements for one year. Childcare records, retirement plan year-end statements, investment records, charitable donation records and tax returns (with back up documentation) should be kept for seven years. And then there are things you should keep forever — or for as long as you own the asset. Insurance policies, titles, warranties, adoption papers, appraisals, birth certificates, custody agreements, divorce papers and financial aid documents all fall into this category.
- Don’t fall off the wagon. Once you have your organized system in place, it’s easy to stay organized — for a few weeks. Then you start finding crumpled receipts at the bottom of your wallet or handbag. Maintain your momentum by taking care of things as they come — when the mail gets there each day, immediately sort it. Switch to electronic records wherever you can. It will cut down on the amount of paperwork coming into your house, which is always a good thing. And finally, give yourself a check up twice a year, in the spring and fall, to make sure you’re still on track.