(stolen from Traceroo on LiveJournal – thanks!)
Why This Is Important
Particularly during tough economic times, the first step on the road to financial recovery is knowing where you stand, what are your assets and liabilities (debts). The only way to know that is to get your records in order to make a complete financial inventory, and then have those records organized for future use. Knowing where to get the information (especially online) is not enough. I thought I was super organized until I took on the exercise of getting my important papers together. I staggered in surprise to realize how scattered they were, how long it took to lay my hands on things, and which records I didn’t have or couldn’t find even I supposedly “knew we had it somewhere.”
It’s also important because you may not be the only person who needs this information. At base, there’s a lot of wisdom out there to suggest that both partners or spouses should know the big picture financially, and even the details. Further, what if you’re audited? Or worse, what if a loved one needs this information in case of emergency? It isn’t enough that you just know all the information, and where it is. What if something happened to you, and your spouse or partner needs it? What if the unthinkable happened, and something happened to you both, and another person needed the information?
You need to get organized!
How Long To Keep Records
The single best thing you can do to keep your files organized is to scrutinize what you really need to keep, and how long you need to keep it. To help you figure that out, here are some resources about how long to keep your records:
United States Internal Revenue Service (IRS):
Clark Howard, consumer advocate:
Peter Walsh, wonderfully vicious professional organizer from TV’s “Clean Sweep:”
My husband and I keep 1 filing cabinet drawer with active files, and we move older files that we need to keep (settled loans, tax returns) into a cardboard banker’s box out of the way. The nice thing about the use of the file box is that the end-of-year purge of the filing cabinet is easy—just pick up the whole file and plunk it in the box.
How Our Filing Cabinet Is Organized
My favorite book about personal finance is David Bach’s, Smart Couples Finish Rich. Among the many pieces of advice I adore from this book that I’ve read several times is Bach’s specific, clear instructions on which financial papers you need, and how to organize them. He recommends that you have hanging files with the following categories:
Savings and Checking Accounts
Credit Card DEBT
Family Will or Trust
I think Bach’s system is a really awesome place to start if you have no idea where to start. Nonetheless, it could use a little polish, and my husband and I used this as a starting point and then modified it for our own needs. For one thing, Bach covers only your financial papers, and I think a more reasonable solution for us has all household files in one place. Second, Bach doesn’t think visually and “Savings and Checking Accounts” is such a long title that it will never fit adequately on a hanging folder label and still be readable. ;)
Here are the hanging folder categories that work for our family – please note that we are not currently either homeowners or parents, so that affects which papers we need to keep active:
At present, our family records consist of the simple, “yours, mine, and ours.” I use file folder labels with colored borders to visually differentiate whose file is whose. Files for my accounts get one color, files for my husband’s a different one, and joint accounts or neutral files (like our cats’ vet records) get just plain white labels.
The file folder label has the name of the creditor or an otherwise easy identifier. On a second line in the corner, I added my name, my husband’s name, or the word JOINT where appropriate.
I’m sorry to dive into some somber discussion here, but I think it’s important to bear in mind that these files may be organized for the use of someone else if anything happens to you or your partner.
If anything happens to you or your partner, your filing cabinet might be the place where someone searches for information like medical directive, power of attorney, will, or life insurance information. You may keep this with a lawyer or in a safe deposit box or otherwise outside of your home. Just keep in mind that it should be easy for your family or even survivors to find this information when they need it.
In our Insurance file, the first item under Life Insurance is a sheet with directions on how to file a claim. Yes, it was a morbid and weird exercise and I hate to think about it—what I hate even more is the thought that my husband might need that information someday, and while grieving, he had to look for it. It was worth a morbid 30 minutes of my time now to spare that possibility! I called our life insurance providers and asked how a claim is filed and all the details. I wrote this up in a simple format of bullet points in a large font, clear instructions with account numbers and so forth. That’s done.
The second sheet in that file is a list of contact information for our contingent beneficiaries in case anything were to befall both my husband and me. Again, it’s not a pleasant exercise for us, but better us than someone else at a worse time.
We have a similar note as the front page of our file for our cats! In our situation, there is no clear nearby friend or relative who’d take care of our pets if something happened to the both of us. We have asked a friend to adopt our cats, and that person’s contact information is the front page of the Cats’ file. Weird to think of, yes, but we love our little furry babies, and we want to make sure their care is secure no matter what.
Your official Will may not include contingency information on your minor personal possessions like photo albums, keepsakes. You might consider drawing up a formal or informal list of distribution wishes and include that in your Wills file. Your executor will handle the big stuff like real property and bank accounts, but maybe you’d like your neighbor to have that mirror she always admired, or your sister to keep your soccer trophy. At the time that executor or family members may have to clean your house and decide what to do with everything, I’m sure they’ll appreciate every detail about any wishes you might have about distribution.
This absolutely includes your wishes about your burial—attorneys don’t always ask about that when preparing a will. Anyone who’s had to make funerary arrangements for another knows it’s tough for survivors to decide about burial, cremation, to keep or scatter ashes, and so forth. If you have any opinion, make sure you put it in writing – even informally for your survivors – and talk about it, too. Make sure they know you have an opinion (or that you don’t have one!), and that your instructions are in place for them. It’s uncomfortable to talk about it, but far less potentially uncomfortable than not talking about it!
They key to keeping your files organized is that this is not a one-time process (although most of the really hard work happens only once, thankfully). We update our files as-needed, which for us is about twice a year, on the cycle of, “when I get around to it!” That works for us, but you may wish to make an annual date with your partner to go over the files together and make any necessary updates.
At the end of the calendar year, some files get moved from active to long-term storage (definitely after I file the new tax return, the oldest one moves). Vendors sometimes change hands or change names—student loans and mortgages are especially prone to this. My husband and I also combine certain independent accounts into joint holding, or vice-versa as our needs change through the years. Add into the mix a house and kid
I am sharing their plan of attack on the filing cabinet not only to spread the word for other people who may be looking for help with their own filing cabinets, but also so I can find this information when I finally get around to going through my own files again.