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Creating a Home Financial Filing System

March 2009

Picking Stocks

You can’t control the weather or markets, but you can make sure that the next crisis finds you prepared, on top of the paperwork and ready to deal whatever life hands you. Here are some suggestions on a home system that mixes the best in electronic and paper filing.

The Basic System

Start with an In Box into which you place all bills and financial papers as they come in (using a three desktop letter sorter like this one as your action box can help you organize bills by date due). You will also need two stand-up, expandable portable files: an Annual File and an Important Papers File. Keep your annual and important papers files handy as you open and pay your bills. After you pay each bill, or open and check each account statement, file the bill, statement or document as described below.

Be sure to print out and file paper copies of receipts and bills that you receive via email. Also make a printout of online bill payments as you make them, and keep a printed copy of the electronic image of key cancelled checks.

Once you have systems in place for organizing your papers, your household will run much more efficiently. In addition, you will be better prepared to deal with the inevitable emergencies or requests for information that pop up.

Annual File

The purpose of this file is to make it easy to prepare your taxes, deal with an audit and/or to access key documents for meetings with financial advisers. Even if you use a computer program such as Quicken to track your finances, you will come through an audit better if you also have a paper file. Use a simple stand-up accordion type file with multiple pockets that you can label as you chose. Here’s my favorite from Staples.

It’s generally better to be a “lumper” not a “splitter” when it comes to files; having too many subdivisions wastes time and effort. Don’t try to be too tidy, just stuff the papers in the appropriate pocket and tidy things up when you do your taxes, once a quarter or annually.

Here are nine basic annual file categories:

  • Investment records—401k, mutual fund, annuity and broker statements; if you subdivide this category at all, divide account statements into only two subcategories: taxable (regular brokerage accounts) and non-taxable (such as IRAs, 401k). This is not the place for prospectuses or annual and semi-annual reports.
  • Banking—statements, check registers, passbooks, canceled checks, printouts of online bill payments
  • Tax records—copies of tax records for previous year, plus key tax documents for this year as they come in from employers, financial institutions, IRS, your accountant, etc.
  • Credit card statements
  • Medical—insurance payments, bills, receipts
  • Car—maintenance records, registration, payment stubs
  • Household—expense receipts, bills
  • Business—expense receipts, bills
  • Travel records—Travel calendar, travel and expense diary, including dated notes on cash expenditures

As each tax year ends, you can tidy up the file, organizing papers by account and date, for example. Once you’ve filed your taxes, be sure to put the original copy of your state and local tax returns along with notes, Quicken reports and any other documentation used in preparing you taxes in the Tax Records section of your file. Then you can move the file into storage. I use a different color for each year. I also mark the file with the year in BIG letters, using a bold Sharpie waterproof marker. If the file is going into storage with other files, mark the storage box on all sides to show which years’ records are in the box.

Important Papers File

The purpose of this file is to make it easy to access old and current files in the event of an IRS or state tax audit; change in financial advisor; change in financial status (such as sale of a house or the need to file an insurance claim); or family death, illness, or disaster.

Update this file as needed: for example file new copies of insurance policies here and discard the old versions:

  • List of key contacts with phone numbers, addresses, emails (attorney, financial planner, accountant, trustees for estate, physician, clergy)
  • List of all account numbers, including credit cards, with numbers and telephone numbers
  • Computer and home network security codes, account passwords and login information, security questions and answers (update regularly!)
  • Location of offsite safe deposit boxes or other record backups
  • Copy of will
  • Power of attorney, living will
  • Life insurance policies
  • House records—copies of deed and title, insurance policy and mortgage, home equity or reverse mortgage agreements; a running dated list of home improvements; lease and renter—s insurance policy, if renting
  • Car titles, insurance policies and loan agreements
  • Medical and long term care insurance policies
  • Copies of the last two to three years worth of income tax filings
  • Personal papers, including birth certificates, marriage license, passports, military service records, divorce decrees
  • Funeral prepayment records, burial plot deeds
  • Copies of estate tax filings for inherited property such as IRAs and brokerage accounts

This file should easy for you (but not a burglar) to find. Plus it should be portable enough to carry in the event of an emergency. Everyone in the family should know where this file is and be taught to grab it if need be. Review the contents at least once a year and make sure that you, your accountant, attorney or trustees have necessary updated information.

The Electronic Important Papers File

These days you can easily find a backup electronic hard drive (or portable external hard drive) that weighs under a pound or two that can be slipped into a purse or overnight case—even better than a paper file! You can keep a backup hard drive in your home. In addition, for extra security and quick recovery in the event of a disaster, a second backup drive can be stored in a secure off-site location, such as a bank safe deposit box. Be sure your most trusted advisor, attorney, accountant, trustee or family member knows where your drive is stored and how to access it.

If you are computer savvy it is easy to make scanned copies of key documents and back up the files onto your portable external hard drive. A digital room-by-room set of photos or video of home contents and valuables for insurance purposes is another good addition to your backup drive. QuickBooks, Quicken, Outlook or other email contacts and calendar files can be backed up here as well. Setting this up is a great project for you and your teenager and a good “teachable moment” on basic financial skills. Just be sure to supervise, make sure you understand the way files are organized, and don’t let the project get bogged down copying nonessential files (your teenager’s gazillion audio files).

Disasters such as Hurricane Katrina showed how offices in entire regions can have files and records destroyed, so keeping a set of backup files with a trusted out-of-state relative or at your second home can be a very sensible precaution.

Additional Files

In addition to your annual and important papers files, it’s useful to have two dedicated file drawers for:

Warranties and Computer Stuff

  • CDs with computer program backup disks. This is also a good place to keep program license numbers information for your home computer, plus network security settings and passwords
  • Guarantees and warranties, instruction pamphlets and owners manuals. Review this file once a year and discard outdated material.

Trade Confirmation File

If you have money invested in taxable brokerage accounts in addition to your tax-protected 401k and IRAs, it’s useful to keep a special file for purchase and sale confirmations of mutual funds, stocks and bonds. Of course your account statements and 1099s have this information, but these statements are filed by date and if you sell the security years later you may not remember when you purchased it. If you’ve switched brokers in the meantime you can have a tough time figuring out the cost basis for capital gains. The solution is to organize trade confirmation alphabetically by the name of the security (for example, Merck stock or bonds under “M”). Each time a security or mutual fund is bought or sold in your taxable brokerage account, place the trade confirmation in a pocket of the file. Thus, file the Merck stock purchase under M, file subsequent purchases or sales behind that original purchase in date order. Monsanto, bought either before or after you sold or bought Merck, will be filed behind the Merck purchases and sales, under M. The file will eventually include many years of confirmations so that you can always go back and find out when you bought a particular stock even if you don’t remember when you bought it.

And how about those annual and semiannual mutual fund reports and prospectuses? It’s better to learn how to scan them quickly for key information and then toss them, than to leave them moldering in piles all over your office. You can always access the information on-line at a later date. Don’t know what to look for? Take my “ABCs of Investing” class or invest some time in financial coaching to help you master this essential 21st Century survival skill.

Tips for Small Business Owners

Small business owners have an extra level of responsibility. The right filing and backup systems, plus employee education plans, can make all the difference between disaster and “Hey, we’re on top of that!.” File management companies like Iron Mountain can make the job of electronic and paper file storage, routine and emergency retrieval and data management much easier. Also, be sure to work closely with your insurance carriers; they have specialists who can help you plan and prepare. The Institute for Business and Home Safety has useful toolkits that can help small business owners prepare for floods, fires and other disasters—and get back up and running faster. For other tips see MSN Money’s excellent article entitled, “Don’t Take Your Passwords to the Grave.”

Reality check

Is this article only a distant dream for you? Are your papers for the last five years in shopping bags or sitting in piles somewhere next to the laundry hamper? Not to worry! At Responsible Investing we can help you take charge of your paper and your life. Contact us and schedule a free initial consultation—unsorted shopping bags welcome!

Responsible Investing is an independent financial coaching and investment advisory firm, registered with the Commonwealth of Massachusetts.

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Past results are not indicative of future performance. Outside sources used in this article are believed but not guaranteed to be accurate. Examples provided are for illustrative purposes only and are not representative of intended results that a client should expect to achieve.