Organizing Financial Documents In A Filing Cabinet

Get a Fresh Start for Effective Organization

In the past, I had a pretty effective system for managing my papers, but now that I’m married, we have a child, we’re about to buy a home, we have a second child on the way, and we’re starting to actually have investments to keep track of, the old binder system simply isn’t cutting the mustard any more.

If you’re a reader of this site, it shouldn’t surprise you that I started digging into various reading materials on how to create an effective filing system for yourself. I dug into many different sources and finally developed a filing system that I think will grow with me for many, many years to come. This morning, I discussed doing a financial spring cleaning; this is a major project that can really clean out and organize financial papers.

Filing cabinet

Choosing A Filing Cabinet And Materials

Choosing a filing cabinet is a little more in-depth than just saying, “Ooh… that one looks pretty!” Why? It has to be a functional object as well; a well-made filing cabinet makes the job of filing incomparably easier than a pretty but poorly-made one. Here’s what to look for.

A good suspension system

Does it open and close smoothly with some weight in it? Grab some heavy books and put them in a drawer. Does the drawer still slide in and out smoothly?

Counterbalancing

Open all of the drawers and put a heavy book in the end of each one. If it causes the cabinet to become unstable or tip, move on.

Thick and rust-resistant metal

Look at the metal; does it seem thick to you? Look at several; it quickly becomes apparent what sturdy metal is like. Also, check that the metal is rust-resistant – you want this cabinet to be sturdy for a long time.

Look for the Underwriters’ Laboratory seal

This means that the cabinet should be able to resist most home fires – a test cabinet withstood 1700 degrees Fahrenheit (the temperature of an average house fire) for one hour without the internal temperature exceeding 350 degrees Fahrenheit. Paper burns at 451 degrees, so all of your papers would be safe.

Your local office supply store should be fine with you doing these things to a cabinet that you’re thinking of buying. If not, don’t do business with them.

What Goes In The Cabinet?

Why would a person need such a cabinet? After all, there’s not that much stuff to file, right? Wrong. The more I listed and thought about the useful and worthwhile things to file, the more I realized I needed a big, good filing cabinet. Here’s what needs to be stored.

Fundamentals

1. Personal papers

This includes things like a Social Security card and a copy of the birth certificate of each person in the household, as well as any other necessary identifying materials.

2. Tax returns

I have every tax return I’ve ever filed, along with all materials associated with the reporting. At the very least, you need to keep these for seven years running to prevent yourself from being audited by the IRS.

3. Deeds, titles, and surveys

You need to keep the deeds and titles for all land and property that you own. If you have title insurance on these materials, you need to include information on that insurance, too.

Emergency Protection and Prevention

1. Insurance policies

Health insurance, disability insurance, homeowner (or renter) insurance, and auto insurance all need to be stored at a place where it can easily be found when you need it. Most of the time, this stuff will just sit there, but when you need it, you need it.

2. Household inventory

This is a complete list of every item in your residence that you own and that has significant value. Make and model, identification numbers, and serial numbers should all be here, along with receipts.

3. Instruction manuals and warranties

This is less important, but it is very useful to have a central location for all of the manuals and warranties for the various items you own, everything from refrigerators and microwaves to televisions and digital cameras.

4. Hard drive backups

I have a folder with two DVDs in it that contain hard drive backups. I try to do backups every month so that if something disastrous happened, I would have the data.

Financials

1. Paycheck stubs

I get mine online, but I still print them out to keep them. They’re a great way to demonstrate how you make money and also for checking that appropriate money is being withdrawn from your checks for tax purposes and so forth.

2. Employee benefit statements and plans

This lets you keep track of additional job benefits, like flexible spending plans, along with the documentation on how they work. Don’t forget about benefits at work like these, as they are often free money if you know how to use them.

3. Retirement statements and plans

I also include Social Security statements in this grouping. In short, these demonstrate the savings you have made for retirement, as well as your pension options.

4. Credit card statements

Although these aren’t as vital as some of the other things, credit card statements over a long period are a fantastic way to really keep track of your spending over the long term. I keep a folder of these organized by due date.

5. Debt documentation

You should also keep a folder describing any and all debts you owe, as well as any and all debts owed to you.

6. Investment information

I keep a folder for my accounts at each investment institution, along with a few years’ worth of statements for each so I can carefully study my investment growth if I wish.

7. Charitable donation receipts

My family makes quite a few charitable donations in a year. We keep these in a folder by themselves for tax purposes.

In Event Of Death…

1. A will

This is useful for ensuring that specific personal items go to the people that you want when you pass away, and can also handle the cash from a small estate.

2. Trust documentation

If you have a large estate, you may wish to set up a living trust to make the transfer to beneficiaries much smoother. Keep all documentation on this.

3. A durable power of attorney

This indicates who has legal powers over your estate in the event that you are incapacitated but still alive. This is a simple document to set up.

4. A living will

Do you wish to be put on a respirator in the event of an accident? How about other medical procedures? A living will clearly and legally states your wishes in terms of medical manuevers to extend your life in situations where you may be unable to make your wishes known.

5. Life insurance policies

You also need to store your life insurance policies so that in the event of your passing, your executors and beneficiaries can easily find this information.

Most Importantly…

A master document explaining what all of this stuff is

This is mostly a guide to the executor of your estate, containing all important information not contained in the other documents and also explaining online account access and other such information, like where a safety deposit box key should be and such. This may also include personal letters to people for them to read in the event of your passing and so forth.

Organizing It

There is no tried-and-true method of organizing your information. What matters is that (a) you have it all in a central location so you don’t have to search for it, and (b) your organization within this central place makes sense to you and it is explained in the master document. That master document must be easy to find, but aside from that, it’s up to you.

If you don’t have any idea where to start, organize the information as outlined in this list, with folders (or groups of folders) matching each category. Then print out this article and put it with the master document so that you (and others) can always understand the basics behind the filing system.

What About A Safety Deposit Box?

I include copies of some of these documents in my safety deposit box, like the household inventory, notarized copies of the deeds, and so forth. Why? This protects against events such as tornadoes that can go beyond the destructive force of a fire.

In short, you should strongly consider a filing cabinet and appropriate documentation of your finances and your life, especially if you have a family to consider.

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  1. Missy says:

    This is great information!
    Good Job!

  2. Bobby says:

    One comment about what you owners manuals…check online, you can usually find pdfs of most owners manuals so you can electronically save which will save you space in your filing cabinet. We did this recently and eliminated about 50% of the owners manuals which saved probably 60-65% space.

    Why the difference? Most of the bigger/thicker manuals are for household appliances and these are easily found online.

  3. Hunchy says:

    Hi Trent,

    This is great information. I have a few gaps in my system compared to your list!

    My financial stuff is all mixed up in GTD A-Z system, but one area you didn’t cover that works for me is I have all my bills arranged in 8 files – Weeks 1 through 5 keep each month’s bills organized by the week they are due in the current month (I pay my bills just once a week usually Sunday night). The other files are Month+1. Month+2, Overdue (yes this happens sometimes, when there’s too much month & not enough money).

    Not exactly as recommended in GTD, but good for me.

    Also I agree 100% on the quality of the filing cabinet. I have sideways drawers in my home office, but my real office has file drawers that interlock so that only one can be open at a time – stops the whole shebang from tipping over.

  4. Caterina says:

    Thanks for this good information!
    I just move to your continent from Europe, and your site is very useful not only for the investing part, but especially for a deeper understanding of all the money and documentation mechanism: how credit cards work, how to use banks, telephone companies, and so on. Everything is slightly different from what I am used to, so it’s good to have a guide.
    Caterina

  5. Paula says:

    I have started using 2 plastic file bins, 3 feet long. Because there was a major fire in my area 7 years ago, and I ended up just throwing all my files into cardboard boxes, which got crushed in the mad rush to evacuate; I decided to go portable. Please consider this if you are in a hurricane or fire prone area.

  6. 25 says:

    As a quick note if your house burns down you are going to loose any and all backups that you have. While just having any kind of backup is better than most people out there, if the data on your hard drive is really important to you, you should consider an offsite storage for the backups. Depending on how paranoid you are a safety deposit box would be good but that may be a bit much if that is all you have in it.

  7. PF says:

    Is there some reason why you don’t use the David Allen filing system outlined in Getting Things Done? I’m just curious because I’m reading it right now and I thought it sounded pretty good.

  8. Mardi says:

    I’m going to have to disagree with some of the items you place in thise file cabinet. Personal identification such as social security, copeis of driver’s licenses or passports should NEVER be in the same place as any of your financial information. As a banker, I see identity theft issues every day. I even had a client who had his safe carted out of his condo in broad daylight by a “mover” or so the theif told the neigbhor when asked what he was doing.

    Keep your id info in yor safe box only and away from anything that can be used to gain access to your finances or your identity. Imagine how much valuable info would be lost is someone carted off your filing cabinet (a lot lighter and less secure than a safe). Imagine the mad dash you’d have to do then.

  9. mr_black says:

    There are some good suggestions here but what about the receipts? My problem is that 7 years of receipts won’t fit in a file cabinet.

  10. Karen says:

    Although you will still need some paper copies, a simple financial program like Quicken or Money could take the place of some of these papers. I still keep copies of important papers (I haven’t gotten around to scanning them) but I can track my expenses and investments without having to keep years of credit card bills and investment account statements. And it’s easy to back up and take with you.

  11. Pete says:

    Trent, great guide, I really appreciate you taking the time to write it! However, do me a favor — take a copy of your latest DVD backup of your computer’s hard drive and bring that to your safe deposit box. Especially considering your stress on fire and flood disasters, a backup is no good if it’s sitting in the same filing cabinet as the same site of a disaster…

  12. Doug says:

    I need to get organized, but I don’t think I am going to do it this way. Instead of buying a filing cabinet, I plan on purchasing a scanner, and scanning all important documents into a pdf form, and storing them on my hard drive and purhaps backing it up also on my webserver.

    Would this perhaps be a better method? I hate paper.

  13. Mary says:

    What has to be saved as paper and what can be scanned for archiving (and off site backups)?

  14. Cliff says:

    Great information… Not to be a smartaleck, but it’s an inaccurately titled article.

    Title of article: How to organize all of your financial documents in a filing cabinet

    Quote from article: There is no tried-and-true method of organizing your information.

    True subject of article: How to choose, and what to put into, a filing cabinet.

    Amount of information on how to ORGANIZE financial documents in article: 1 paragraph, towards the end.

  15. Tom says:

    Keeping all credit card statements? Forever?? Yikes. I’m with Consumer Reports, who says these can be shredded one year in, unless they support tax items, in which case it’s 7 years. (Tax-related items go on a particular card of mine, so I always know which statements need to be held 7 years.)

    But I’ve resolved to go paperless. I already have Mozy backing everything up off-site at 5am every morning (free!), and I have plenty of local backups.

    Also love the tip about finding PDFs on the web for instruction manuals — hadn’t thought of that, but will do.

    Finally, re: identity theft — any California resident who hasn’t taken advantage of the law allowing California residents to ‘lock’ their credit is crazy. You have to send letters to the three credit service bureaus and pay a small fee, but once that’s done, no one can destroy your credit. The only hassle is that if you want to buy a car, you will have to make a phone call ahead of time to unlock your credit to apply for the loan. But it’s a lot better than finding out someone ELSE bought a car under your name!

  16. Fazal Majid says:

    Filing paper is a tremendous waste of time, In very few cases do you need the originals.

    I use a document scanner (mine is a $900 Fujitsu fi-5120C for Mac compatibility, but the Canon DR-2050C is excellent at $500 for Windows users) to scan all my incoming mail to PDF. The PDFs are then filed on the computer. I have a backup script that encrypts them, then copies them over the Internet to my computer at work for an off-site backup.

    Once your main filing is done on your computer, you can shred unimportant papers, and keep a simple chronological file (one 6×8 clasp envelope per month). In the exceedingly unlikely event you need to retrieve a paper document, just look up the date of the document in the PDF (I stamp them with the date prior to scanning them). You can then retrieve the envelope for the month in question.

    This filing system is much more compact (two years’ worth of mail fit easily in a standard desktop file), offers full backups in case your house burns down, and if you use OCR software your entire file can be indexed.

    I documented my paper workflow in more detail here:
    http://www.majid.info/mylos/weblog/2006/05/01-1.html

  17. Trent Trent says:

    Fazal: it seems to me that all of that time spent scanning could be construed as a waste of time as well, esp. considering you do also save the paper copies.

  18. Heather says:

    Tom: I found a good article that tells of one major downside to using Mozy. I think it would be of value to anyone who uses Mozy. It tells how deleted files are removed from your backup, which if done accidentally by you, goes unnoticed.
    http://news.com.com/8301-10784_3-9752330-7.html

  19. Russ says:

    A good filing cabinet should have a good lock. Thieves also look for financial data for ID theft. I bought a hinged bar that screws onto the cabinet and swings over the left side of my filing cabinet drawers, I can lock it in place with a padlock. Much more secure than typical cheap drawer lock.

    Get a good shredder too.

  20. ef says:

    Tim Gunn on Bravo’s, “Guide To Style”, says we only need 10 items of clothing and has a paper check list to get it right, maybe some more important areas of our life should too.

    Two thoughts, one, we need a similar show, called “Guide to Finances”. Some one with financial expertise shows up at your doorstep to raid your filing cabinet and your areas of your financial life :-)

    Two, if our wardrobe warrants a checklist, maybe our finances do too.

  21. ef says:

    I always wondered what those folks affected by Katrina and wildfires, where everything is destroyed by water, fire, or storms, do when it comes to records. Especially those folks who have worked for 20+ years and had multiple IRA’s, Traditional and Roth, in 10 different financial institutions closing and opening new ones every 5 years with different companies. Effectively the only people that know what they have might be the IRS and them, well until they lost it all in the disaster. When it comes to the IRA (the only pension, besides SS, for most people in the future), The IRS should really do what the Social Security Agency does. Every year send out a statement of account.

  22. ef says:

    The tech guy at JDR wrote a short article about scanning documents for record keeping a while back. Do public and private institutions accept them (i.e., IRS, banks, etc). I always thought they wanted the original. Also, do employers mind that you store personal data on corporate hardware… Perhaps write to CD or DVD and have an exchange program with family members.

  23. Sysadmn says:

    Safety deposit box? Check your state’s laws first:

    “There are a few exceptions but, generally, banks are obligated to seal a decedent’s safe deposit box until it is inventoried by a representative of the Department of Revenue.

    The major exception to the general rule deals with boxes that are rented in the names of a husband and wife. With these boxes, upon the death of either spouse, the survivor is granted unrestricted access to the box. This exception exists because property owned jointly by spouses is exempt.” (http://www.estateattorney.com/safedepo.htm)

    If you’re single, you might want to look at other alternatives.

  24. wiljs says:

    You should contact each bank/financial institution your have an account with and get a copy of their “death contract” or whatever they call it and fill it out. This allows your account to pass directly to your beneficiary when you die. If you have a joint checking account and fill out the form then the account passes to the survivor without going through probate just as your IRA does. If couples have separate accounts then you still can fill out the form and the account will still skip probate and pass automatically to the survivor. You can either scan it before you send it back or keep a copy of it in a “death book” so the survivor knows what to do.

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