How to Organize Your Paperwork in Just 10 Minutes a Week

By Emily Guy Birken on 30 December 2015 0 comments

I am an organization nerd. Not only does the thought of going to an office supply store make me giddy, but I have been known to spend a torrid Saturday night wantonly using my label maker on everything in the house.

Despite these tidy living bona fides, for years my organizational downfall was financial paperwork.

If you find yourself in a similar state of paperwork chaos, not to worry. You can tame the beast without having to sacrifice an entire week to the project. In fact, organizing your paperwork is a job you can handle in 10 minutes a week. Here’s how:

1. Know What You Need

The first problem with financial paperwork is the fact that it can be difficult to remember how much of it you need to keep. The specter of an IRS audit is enough to turn anyone into a paperwork hoarder, but keeping everything isn’t helpful if you don’t know how to find what you need.

Before you get started, you need to know what to keep and what to toss.

The One-Year Rule

Most of your day-to-day financial paperwork, such as paycheck stubs, paid bills, bank records, and quarterly investment statements only need to hang around for a year at most. Once you’ve received your W2 and annual statement, you can shred paycheck stubs and quarterly investment statements after making sure everything is accurate. Unless your bills and bank records are needed for tax purposes, they can also be shredded after one year.

The Three-Year Rule

You have probably heard that you need to keep all tax-related paperwork for seven years, but that is actually a longer period of time than what the IRS expects of the average taxpayer. While you are stuck holding onto your annual tax returns indefinitely, the IRS doesn’t expect you keep supporting documentation (like mutual fund reports or charitable gift receipts) for more than three years. What’s special about the three-year mark? That’s the number of years Uncle Sam has to initiate an audit for regular tax returns.

Once you’ve passed three years, you can shred the records, with a couple of exceptions: First, keep documentation showing the initial purchase price of any stocks or mutual funds you own, because you will need to determine your gains or losses when it comes time to sell. And second, hold onto house records for as long as you live there (or own the place).

The Seven-Year Rule

The IRS can initiate an audit within seven years for any taxpayers who filed a claim for a loss from worthless securities or a bad debt deduction. Taxpayers who don’t include up to 25% of their reportable gross income (think servers or other employees who rely on cash tips) should hold onto their records for six years in case of an audit.

2. Start Sorting With Three Folders

Once you understand what can be kept and what can be chucked, it’s time to start organizing. The key to 10-minute organizing is the Quick Sort Method, created by Kimberlee Stokes of The Peaceful Mom. You will need three empty manila folders, labeled NOW, 10 MINUTES A WEEK, and FILE. In addition, you want to warm up your shredder for all the items that don’t go in any of these folders.

Once you have the system in place, you can leave your three folders in a standing rack right by the trashcan or shredder and sort items the moment they come in the mail.

The NOW Folder

This is where you will put any items that need immediate attention, such as bills to pay, insurance paperwork, license renewals, and the like. When you finish sorting all of your paperwork during this first sort-and-purge stint, you will go through the NOW folder and take care of everything. This will likely take you longer than 10 minutes the first time, but it will set you up to make organizing your paperwork and paying your bills much simpler down the road.

As you complete each item in the NOW folder, you can move that paper either to the FILE folder for future filing, or to the shredder. Once you have your system in place, you can put items directly in the NOW folder as you receive them, and take a minute or two each day to empty the folder.

The 10 MINUTES A WEEK Folder

This folder will house all of the items that require some sort of action on your part but don’t need immediate attention. For instance, you might put subscription renewals, paperwork that requires input from other family members, items that have no specific deadline, and the like.

Once you have taken care of the NOW items, the items in this folder will be the work that you do each week to stay on top of your paperwork and maintain your organized files.

The FILE Folder

Items that you need to file for the future will go into this folder. When you start using this system, the FILE folder will get pretty full, but eventually, you’ll find that there is nothing left in the first two folders You will spend your 10 minutes each week filing from this folder.

As for the filing, generally you will only need two systems: one for tax documents and one for general financial documents. These two systems do not need to be complex to be useful. Here is how to organize them both:

3. Organizing Tax Documents With Three Folders

Most taxpayers can easily organize their tax documents with three folders. You’ll need one each for income, expenses and deductions, and investments.

Folder for Income

If you work a single traditional job and receive electronic paystubs, you may not even need an income folder. But this is essential for those with irregular income, freelancers, contractors, people holding multiple jobs, and anyone who receives income from investments. Having this folder in place will help you keep track of every single penny you earn.

Not only should you deposit all paycheck stubs into this folder, but Dayana Yochim of The Motley Fool also recommends recording your earned income on a cover sheet in the folder, as well. This will give you method for checking the accuracy of official documents as they arrive.

Folder for Expenses and Deductions

If you’re like most people, you probably throw your receipts, statements, and paid bills into a shoebox to sort through come tax time. It’s much easier on your sanity to create an Expenses and Deductions folder with separate sections so you can be more organized throughout the year.

For instance, this folder might include sections for business, charitable donations, childcare, and medical expenses. Separating out all of your receipts for expenses and deductions will save you from those horrible moments when you cannot recall why you held onto a particular receipt.

It’s also a good idea to file a list of common tax deductions in this folder so you can easily remember what you may claim what documents you need to save.

Folder for Investments

Your Investments folder is where you will store the following paperwork:

  • Records proving your tax-deductible contributions to retirement accounts.
     
  • Notices of dividends, and capital gains and losses.
     
  • Distribution records you receive when you take money from investment accounts.
     
  • Annual statements.

Generally, the IRS will not need all of this paperwork for next year’s taxes, but you need this information on hand for future tax returns. For instance, if you sell an investment, you will need to be able to provide paperwork about that investment, and having it filed by year for future reference will make your life much easier.

Organize Tax Information by Year

Once you have filed your taxes each year, it’s a good idea to then create a file folder labeled with the year, where you place everything from your three tax folders. Each year, you can also go through your four-year-old (or eight-year-old) tax file folder and purge the documents that you no longer need. Remember, you should keep the actual return for each year — it’s only the supporting documents that can be shredded after the end of either three or seven years.

4. Organize General Financial Documents Alphabetically

For all of your general financial documents, the easiest filing system is the one recommended by David Allen in Getting Things Done — file your paperwork alphabetically in hanging folders. It is much easier to find the specific paperwork you need if you know to look for a cable bill under C for Comcast, rather than trying to root through a huge folder labeled Utilities.

5. Maintaining Your Paperwork Organization

Organization is a process, not an event. Creating these folders will not actually help you end the paperwork pile-up if you can’t maintain it. Here are two ways to make sure you keep up with your 10 minutes per week:

1. Put Documents Where You Naturally Store Them

We all have a tendency to let our paperwork pile up in a particular spot in our home, such as the kitchen counter or the coffee table. One of the problems with attempting to get organized is that we often try to rehome our paperwork in a “better” place than where things naturally gather, and so we spend an afternoon creating a paperwork station in the spare bedroom.

But you’re not going to schlep the mail upstairs every day after work, so don’t expect a filing system to be sustainable up there. Create a system in the place where you naturally gravitate, because it is easier to maintain a habit that is based on the way you already use your space.

2. Schedule 10 Minutes of Organization Per Week

Organizing financial paperwork is an important but not urgent task, so you can easily fall into the “I’ll just do it later” trap. The trick to keeping up with your organization is to schedule it the same way you would a meeting or conference call.

Unless you schedule a specific time and protect it from other commitments, you’re likely to lose momentum. Figure out when your 10 minutes will be spent, write it on your calendar, and keep the appointment with yourself. You’ll be glad you did.

How do you keep your important documents organized?

0
No votes yet
Your rating: None
ShareThis

Disclaimer: The links and mentions on this site may be affiliate links. But they do not affect the actual opinions and recommendations of the authors.

Wise Bread is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to amazon.com.