Updated on 07.31.14

Financial Paperwork Bankruptcy: Should It Be Done And If So, How?

Trent Hamm

kabinetAn old friend of mine discovered this site and asked to have lunch with me because she had a few questions she wanted to ask me about her financial situation. She was actually in good financial shape, but rather than having any sort of filing system, she would mostly just glance at old statements, toss them in a box, and forget about them. She didn’t keep track of anything that could be tax deductible or anything like that, merely relying on end of year statements for any of those. The end result? A huge trash bin in her closet full of eight years’ worth of financial statements.

The good news is that she now sees the purpose of organizing one’s financial statements: they provide a great record of where you’ve been and where you’re going, plus detailed records can be huge at tax time if you choose to itemize your income taxes. I personally look at old statements regularly to track my progress in various ways; I often use them to build various models of my spending and I’m building a huge one now to estimate some payoff dates of my student loans, my home, and our next automobiles.

The only problem is that she can’t motivate herself to even get started making sense out of this huge pile of statements. It seems so overwhelming to her that she just can’t get started with that huge pile of paper.

My solution? Declare paperwork bankruptcy (sort of) and start over from scratch. Similar to email bankruptcy, it’s an acknowledgement that the pressure of the stuff you haven’t dealt with is enough that it’s keeping you from moving forward, so you simply just leave all of the old stuff behind. Don’t worry about filing anything that’s in that bin, but don’t throw it away yet, either. Here’s the plan I proposed to her, one that might be useful if you’re feeling nervous about getting started in a filing system of your own.

First, verify all of your most current statements so that you know they’re correct. If something doesn’t jibe, dig back until you can find the source of it and get it straightened out. Don’t declare paperwork bankruptcy until you’re sure everything is fine.

Next, figure out the essential documents that should be in your filing cabinet. I made an extensive list of the basics for your home filing cabinet in the past. Most of the stuff to include is pretty basic: tax returns, pay stubs, and so on.

Then start filing all of your receipts, statements, etc. I recommend having a section for each year and then folders within that section that break down the groupings, like electric bills, pay stubs, etc. Some of the documents (like a will, etc.) are timeless and should be in their own section. I find it very easy to do this once a week and let things pile up in a “to be filed” basket until that point. I just toss everything in there – receipts, statements, etc. – and then file them all at once.

What about all of that old stuff? If it’s in your “trash bin of doom,” don’t worry about retrieving it unless it’s a lazy Sunday and you feel like pulling all of that old stuff into your system. Instead, just start filing the new stuff and leave the old stuff alone wherever you have it. Let it sit for seven years (just in case you ever need to retrieve something out of it), then burn the whole thing in a raging inferno. A couple of boxes clearly marked “old papers” in the back of your closet or in a storage space is the best place for it.

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  1. David P says:

    I’ve thought about all sorts of solutions to my backlog of paperwork. Having recently married, now there seems to be twice as much paper to sort out.

    I’m coming to the realization that I need to set everything aside and just wait seven years.

    One big question for Trent: Do you get all of your statements in the mail or do you do the electronic delivery method? I like not getting the mail, but I don’t like relying on the bank to keep all of my data.

  2. Peter R says:

    @ David P – I understand your hesitation going completely paperless, but who do you think sends the paper statements? Mistakes can be made on those too. The best defense to bank error is to keep detailed records on your own.

  3. verena says:

    I, too, had just a mess of papers everywhere. Some were filed properly, lots were just laying around. At the end of last year I had purchased a Mac application called ReceiptWallet, but never used it. I was reading a blog entry a month or so ago, and the blogger mentioned his system, where he converted everything to PDF using a Fujitsu ScanSnap scanner. I bought one, but I don’t always follow through with stuff, I thought I might end up with another expensive paperweight taking up space.

    I set the scanner up when it arrived, and it has changed my paper-filled life. I scan all of my business related expenses, tag them with a serial number, then file them by serial number and file them away (in case the feds want to see). ReceiptWallet keeps the scans nice and neat, you can sort and categorize them. For my personal receipts that I don’t need to keep, I scan them and then shred.

    I also downloaded ReceiptWallet’s sister application DocumentWallet. I keep copies of any other documents I want to keep in there, including PDFs of manuals, copies of tax forms, etc.

    My paperwork clutter is ALL GONE. It was fun to scan through it, and I am now prepared for next tax season.

  4. Ursula says:

    I used to keep every single statement for every single account … after doing this for about 15 years and never having to refer to any of those statements even once, I realized that I didn’t need to spend so much time keeping all my statements organized.

    Fast forward to the 21st century and the advent of so many online paperless services. I don’t bother keeping too much of anything in “hardcopy” fashion anymore. I keep my year-end statements for my mortgage and my retirement accounts, but that’s it. I’ve gone to paperless for my VISA and my bank accounts, I check them religiously (daily, as I’m a control freak), and I know that if I ever should NEED a paper statement, I can order one online. Any statements other than the above mentioned I check then shred.

    My filing life has been much simplified since doing this! I’ve been doing this about 3 years now, and haven’t had a need to order a paper copy of any of my online statements yet.

    Paperless frees a lot of one’s time as well as space in one’s house to store all that stuff!

  5. Mardee says:

    I’m another one that has been paperless for several years now and loves it. I used to get so many statements from banks, my DRiP investments and other accounts that I was awash in paper and just overwhelmed. Now I get everything electronically – it’s available if I need it, but I usually don’t. And now I can save my filing cabinet for items that don’t come in digital form. :)

  6. Very helpful post that hit on something I need to start doing asap.

  7. This is sage advice. I bet she’ll sneak into that closet and tackle the backlog in 10 minute increments, however, once she discovers the beauty of a working file system.

    She’s lucky to have you for a friend. Too many people would wag fingers and make her face the big box of papers.

    It would be helpful, though, before the box is put all the way in the back of the closet, to do a quick run-through and make sure nothing important (like checks or tax info) is in there. As long as it’s a box of benign backlog, this is a gentle and safe way to deal with it.

  8. Sonnie Grimes says:

    The reply from Juggling Frogs triggered something I had seen a couple of weeks ago. I was in a committee meeting where the leader was concerned about our lack of funds. She started going through a file of papers as part of the meeting when in this stack she unearthed several checks which amounted to appx. $100.00. Most of these checks were about four years old. Need I say more?

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