Organizing Financial Documents In A Filing Cabinet

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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