Friday, January 26, 2007

6 Easy Steps For Organizing Your Financial Papers

Ok, if you're like me, you've finally gotten the last item you need to start working on your tax return. But before you can do that, you need to figure out what you need, and where you put it, likely in a mountain of paper. Here's what I've done so far for the past few years; it seems to work well for me.

1. Make a list of all of the items that you will need in order to complete your return. For me it is mortgage interest statement, student loan interest statement, checking account statements, auto-loan interest statements, and finally, w2s and 1099s. Once you have your list, you are ready to obtain the items you need.

2. Leverage web-access to get these items sooner. You can generally setup accounts and passwords for these websites and access the information faster to get your return underway early.

3. Eliminate the clutter. In order to keep good track of your financial paperwork, it is critical to get organized. It only takes a couple of hours every few months to stay on top of this and even if you aren't keeping up with it, you can still catch up on a weekend.

4. Decide on Piles. It sounds basic, but everything is first divided into three piles: Save, Trash, or Shred. Anything that I want to keep, from checkstubs to bills to receipts goes into the save pile. I am a bit over the top on this; I save everything. If I ever need it, I know I saved it. I can always throw it out later, but I can't retrieve it if I threw it away.

The trash pile is stuff that is not important. Its junk mail mostly, but it often it includes empty envelopes and other paperwork. Recycle if you can, otherwise just trash it. But shredding is critical. I mean, this is the stuff that identity theft is made of. Most of these papers have names, social security numbers, and other unique identifiers all over it. If that is the case, shred that paper. You don't want to throw items like this out.

5. Sort the save pile. Once you have your save pile completed, you can now really figure out what's what. I divide that pile again into the following piles. Checkstubs, bills, receipts, Misc Info( insurance, Flexible Spending Account Info etc.). Then with each major pile, I make a folder and label it with the contents and the year. Tax returns once completed get their own folder as well.

6. Start Now for Next Year.  Since I've been organizing this way for a couple of years now, I am starting to run out of space, but I don't mind because all of my papers are nicely organized. And if you plan to do this next year as I do, you can start to do your sorting and opening as you go. This makes for a much nicer process come tax-time.

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