Out With The Old, In With The New: Develop a Robust Filing System

Throughout the month of December, The Simple Dollar is posting a daily series focusing on specific activities you can do right now to set the stage for a great 2011. Out with the old, in with the new.

18. Develop a robust filing system.

A few years ago, I had a nightmarish time filing my taxes. I still remember it – 2007 was “the year of the dreaded tax return.”

The problem wasn’t filling out the forms or anything like that. The problem was simply finding all of the papers I needed to get the taxes finished. Some papers were in the “catch all” on the entryway table. Some were stowed away in various drawers. Still others were in a box of “important papers.”

It was a mess. I spent many hours going through piles of papers. Finally, after the whole process was over, I realized how worthwhile it would have been to spend thirty minutes spread throughout the year getting and keeping all of this stuff in order.

I spent some time reading about home filing systems, purchased a filing cabinet and some folders, and never looked back.

It seemed, at the time, as though the process of setting it up would take forever and never really repay the time investment, but after a few years of having it, I have to say that time and time again, a good paper filing system has saved me a substantial amount of time on the whole.

Starting from Scratch
Many people who start a filing system in their home are starting from nothing more than a big pile of disorganized “important” papers.

I wrote a detailed guide on filing from scratch a few years ago, but I’ll summarize it for you below.

First and foremost, you need a good place to store your files – a filing cabinet. I’d look for four things when shopping:

A good suspension system Do the drawers slide in and out easily?
Counterbalancing If you pull out a full drawer, does it cause the cabinet to tip?
Thick and rust-resistant metal, possibly lockable Does the metal in the cabinet seem flimsy? Is it stainless steel?
Look for the Underwriters’ Laboratory seal This is usually a great indication of a quality filing cabinet.

What exactly do you file? I think this depends heavily on the person, but here are the documents that I include:

Personal papers
Tax returns
Deeds, titles, and surveys
Insurance policies
Household inventory
Instruction manuals and warranties
Hard drive backups
Paycheck stubs
Employee benefit statements and plans
Retirement statements and plans
Credit card statements
Debt documentation
Investment information
Charitable donation receipts
A will
Trust documentation
A durable power of attorney
A living will
A master document explaining what all of this stuff is

Some of these documents also exist in a second copy in a safe deposit box at a local bank, in case of a devastating home fire.

Trust me: it’s well worth your time to get a robust filing system in place. You’ll find yourself turning to it – and valuing it – time and time again over the coming years.

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5 thoughts on “Out With The Old, In With The New: Develop a Robust Filing System

  1. valleycat1 says:

    Each year we set up our current year financial filing system according to the line items on the IRS forms we file – labeled with the line item # and heading & filed in the same order as the forms list the items. For example, since we own a farm, we have a file folder for each line item on Schedule F, and as we have income & expenses, they are coded in our bookkeeping software according to the line items & the backup documentation goes in the correct folder. Since I also hold an office job for a company, we have a folder for my income documentation – once the year’s W-2 is validated, paycheck stubs can be either kept or discarded. Ditto for investments; if we itemize deductions, those go in the appropriate folder(s) too.

  2. cathleen says:

    I have very few papers. Everything is saved online, backed up online, in email etc.
    I have a passport in paper and mortgage docs but everything else from paystubs to statements, property tax, etc. is online. I’ve scanned all important papers, Easily searched, takes no space, I don’t have to worry about fire/water/earthquake etc. I have backups of backups, with no added work on my part.
    I’ve gone through a major earthquake when getting to paper documents was impossible and some were destroyed, a nightmare.

  3. Kathy F says:

    In addition to the stuff mentioned already. I have a ton of paper files, about four drawers worth. Every account I have has a file: banks accounts, retirement accounts, credit card accounts, subscription accounts, different kinds of insurance. I have a file for my car- I keep anything like maintenance receipts in there so I have a history of what was repaired when. I have a file for my medical insurance, my dental insurance, my Flexible Savings Account. I have mortgage file, refinance file, HELOC file, condo rules/budget files. Plus the docs on my old condo.

    I sometimes think about scanning things and putting them online, but the task seems daunting. It’s a lot of paper but everything is there and easy to find. I sometimes have trouble organizing and finding things on my computer as it is. Maybe when I retire, I will plan on scaling everything down to electronic files.

    I have just started to get all my credit card bills and utility bills electronically and pay them online. I also have starting to download billing statements instead of receiving paper copies. Same thing with the bank statements. Maybe I can slowly move towards getting rid of so much paper.

  4. Riki says:

    I do a lot of stuff electronically and it has made a huge difference. It was gradual for me . . . for example, when I switched to and electronic phone bill, I didn’t make any major changes until I eventually completed my yearly filing cabinet purge. By doing it in stages, I don’t have to face huge piles of paper to digitize and it makes the papers I do keep much, much more manageable. Eventually I will go digital as much as possible, but I’m content to let it evolve rather than making a huge switch all at once.

    And if you go digital, don’t forget to backup your hard drive!

  5. Cheryl says:

    Re: the daunting task of scanning everything. It has taken me about 2 years to do this. We, too, had a 4 drawer filing cabinet full. I have whittled this down to 1 box of income tax returns (from before we used Turbo Tax) and 1 plastic file box. I try to get most bills online so they can just be saved as PDF’s. It’s so much easier to find the item you’re looking for since the computer sorts them as they are saved.

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