If you’re like most of us, managing your finances can feel overwhelming, especially when juggling a busy life. Staying on top of bills, budgets, credit card statements, tax documents, and saving for retirement is challenging enough. But then you add the deluge of paperwork that comes with it, and you might feel crushed by the amount of paperwork you need to manage on a daily, weekly, monthly, and annual basis.
Sure, some financial institutions now send bank documents and investment statements via electronic delivery, but you still likely have piles or filing cabinets stuffed with financial papers in your home.
Keeping all those documents in order isn’t about having beautiful, color-coded folders (although that’s certainly an option if you want to!) It’s about avoiding late fees, keeping track of tax deductions, and gaining a clearer picture of your financial health.
If you’re ready to organize your financial records once and for all, this guide will walk you through organizing your financial paperwork, from determining what to keep to setting up and maintaining a system that works for you.
Step 1: Gather all your financial documents
Start by collecting all of your financial paperwork. This might include:
- Bank statements showing your account balances and transactions.
- Tax returns for federal, state and local filings, as well as supporting documents like charitable donation receipts, W-2s and 1099s.
- Investment records from your taxable accounts and retirement accounts like 401(k)s and IRAs.
- Loan documents for your home mortgage, car loans, student loans, and credit card statements.
- Bills and receipts for utilities, medical bills, vehicle maintenance records, and receipts for major purchases.
- Insurance policies including your homeowners or renters, auto, health, and life insurance policies.
- Income statements like pay stubs and Social Security statements.
Having all your documents in one place makes it easier to see what you have and what might be missing.
Step 2: Sort documents by category
Once you’ve gathered everything, the next step is sorting. You can break your paperwork into the following categories:
- General information. This category includes general financial information, such as phone numbers for your accountant, estate planning attorney and financial advisor, safe deposit box inventory, and personal documents like your birth certificate and Social Security card.
- Current money. Current money is any financial documents that apply to your current financial life. This category might include recent loan and credit card statements, your current budget (if you keep a paper copy), credit card rewards information, current bank statements, and current insurance policies like your home or renters and auto insurance policies.
- Future money. Future money includes financial records for accounts you’re not accessing now but will tap in the future. Your 401(k) and IRA statements belong in this category. Consider including recent statements for your Health Savings Account (HSA) if you use it as an additional retirement account. Other critical financial documents in this category include Social Security benefits and pension statements.
- Estate planning documents. This category can include your wills, trust documents, contact information for the executor of your estate, financial planning documents, directions for your end-of-life celebration and funeral arrangements, etc.
- Home inventory. If you have a home inventory, that document belongs in this category. You might also include purchase receipts for high-value items like jewelry, artwork, electronics, computer equipment, and more.
Sorting by category makes it easier to find what you need later.
Step 3: Decide what to keep and for how long
One of the most common questions when organizing financial records is: “How long should I keep this?” Here’s a quick guide:
- Tax returns. Keep for at least seven years after filing the return. The IRS normally only audits tax returns filed within the last three years, but it can go back further if it believes you seriously underreported your income.
- Bank statements. Retain for a year unless tied to tax filings, in which case, keep them for seven years.
- Loan documents. Keep until you pay off the loan and the debt is cleared from your credit report.
- Investment records. Hold on to these until you sell the investment and for seven years after.
- Monthly bills. You can generally toss or shred these after a year unless they’re related to taxes, home improvements, or warranties. For utility bills, remember you can usually access several years of statements by logging into your online accounts. Consider keeping just the most recent bill handy if you like to have the customer service phone numbers and account numbers on hand.
- Insurance policies. You can shred old insurance policies once you receive your renewal.
- Receipts. You can shred or throw away receipts once you confirm the transaction on your bank or credit card statement. You should keep certain receipts longer if they relate to a high-value purchase, in which case you want to keep them as part of your home inventory or support a tax deduction. Consider scanning receipts you wish to keep since the information on receipts tends to fade.
Step 4: Set up a paper storage system
Now that you’ve sorted your documents, it’s time to set up a storage system. There are a few ways you can do this, depending on your preferences:
Physical filing system
Many people automatically turn to file cabinets to store important financial documents, but filing cabinets aren’t ideal. First, they’re not portable, so you can’t grab and go in the event of a natural disaster or a meeting with your estate planning attorney.
Second, they tend to become bottomless pits of unused documents—papers go in but don’t come out until the drawer is so full you need to declutter it.
That’s why I recommend using a large three-ring binder to hold your important financial records and keeping the binder in a secure place. Organize it according to the categories listed above. Then use slash pockets and page protectors to hold bills, receipts, statements, and legal documents. When a new statement or policy comes in, it’s easy to pull out the old paper documents and shred them, keeping your important documents organized and up to date.
Exceptions to the binder method
There are two exceptions to the binder method: tax returns and mortgage closing documents. I recommend keeping them in a fire-resistant filing cabinet or a file box in your storage area. You need to hold on to tax files, but unless the IRS audits your return, you won’t need to access them again until it’s time to shred them seven years later.
For mortgage closing documents, their size makes them impractical to store in a binder, and you’ll likely never need to access those documents again until you need the information to report the sale of the property on your tax return.
You may also want to invest in a safe deposit box for certain documents like your original birth certificate, Social Security cards, and passports. A fireproof safe may also work if you want to keep these original documents on hand, but remember: the level of protection varies depending on the safe’s construction and rating.
Digital filing system
If you prefer digital record keeping, scan important documents and organize them into folders on your computer or an encrypted cloud storage service. Be sure you use descriptive file names, like “2023_Bank_Statement_January” to make things easy to find.
Digital records are becoming more common, and many companies now offer paperless statements, so consider a hybrid approach if you have both physical and digital records.
Step 5: Regularly update your system
Once you’ve organized your financial records, it’s important to maintain the system. Set aside time at least once a quarter to file away new documents and dispose of anything that’s outdated. Having a routine prevents paperwork from piling up and ensures you’re always able to find what you need.
4 common challenges to keeping organized financial records (and how to overcome them)
Many people struggle with staying on top of their financial documents for a few key reasons:
Time
Finding the time to organize financial records is difficult when you’re busy with work, family, and other commitments. As a result, paperwork piles up or gets tossed in a drawer until it’s a major problem that needs to be dealt with.
A good strategy is to set aside a couple of hours each week to address your physical papers, and a few hours each month to update your filing system, whether it’s in physical or digital formats. Breaking the task into small, manageable chunks rather than doing everything at once helps keep your records tidy and up to date.
Clutter
It’s easy for financial paperwork to pile up, making it hard to know where to start. If you’re facing a mountain of paper, start by tackling one category at a time. Sort your important paperwork into the categories outlined above and choose a place to start.
For example, you might start with Future Money, since it’s a relatively small category and you likely only receive statements for your retirement accounts on a quarterly basis. Once you get that paperwork organized, you can move onto Current Money or Estate Planning documents.
Uncertainty
Many people simply don’t know what to keep or how long to keep it. Using the guidelines above will help you make decisions about what’s important and what can be discarded. If you need more guidance, check out the IRS’s guide to how long you should keep tax records or Bank of America’s article on knowing which documents to keep.
Disposing of financial records
Maybe you’re worried about clearing out piles of old bank statements and other documents because they contain personal information you don’t want to have exposed. It’s true that throwing documents in the trash is risky—anyone willing to dumpster dive could get access to your account numbers.
Your best bet is to shred any documents containing your name, address, phone number, bank account numbers, and other sensitive information. If you don’t want to spend time shredding yourself, many retailers, including some Office Depot and Office Max locations offer shredding services. You’ll have to pay by the pound, but it’s a small price to pay to keep your financial records secure.
Get help organizing and maintaining your financial records
Having organized financial records can reduce stress, make your life easier, and lay a solid foundation for financial well-being, but having organized records is a task that requires ongoing attention. If you find it hard to stay on top of things, or just need help getting started, contact Firefly Financial Organizing. We’d love to help you organize and store important documents in a way that works for you.
Whether you need assistance organizing your paperwork or setting up systems to manage your finances efficiently, our team is here to support you. Reach out today to start getting your financial life in order and gain clarity, calm, and confidence in your financial goals.
