Like many during this time of year, you may have found certain documentation painful to retrieve and scattered in several locations. Maybe a life event added to the strain of pulling all this documentation together. But there’s good news: you can create a system to quickly file and find anything you need financially. Let’s look at the steps you can take to retrieve things quickly.
When you receive documentation don’t think about what it is (a cell phone bill, a greeting card, etc.), but think about what you are going to do with it. I encourage my clients to ask what is the ‘next’ action required as it relates to this piece of documentation.
Here are four ways you can approach your documentation:
- Act on it
- Refer to it
- Wait on it
- Keep it
Track Action Items
Get a system for tracking your action items. These need to get incorporated into a ‘to-do’ list that you review every day. Ideally this list travels with you throughout the day. This way you can add to it or take care of items in between appointments. This can be a digital or a hard copy list.
Reference items contain information that you will refer to in the future. There are two types of reference items, those that require quick access and those that require longer terms access. Create a quick reference for items that need to be accessed on a weekly or monthly basis. Contact information and monthly statements go into a quick reference. The ‘longer term’ reference are those items that are kept for tax purposes or financial planning. Other items might be kept if they would be too difficult to track down or too time consuming to recreate. Investment summaries are an example of this type of longer term reference.
These ‘longer term’ items can be incorporated into a file system. In creating this system, ask yourself, “How would I look for this file?” If you think about retrieval, this can typically reveal the best way to organize this material.
Many folks call this category pending, ‘on hold’, or waiting. This category would be defined by the following limitations: you are not able to take any action on this paperwork because the date is not here yet, or you need more information.
Pending items can be part of a tickler system. The system can be as simple as paper reminders in a 1-31 accordion file. If a digital solution is preferred, consider digital notebooks in Evernote where these reminders can be stored in the cloud. You could also consider setting the reminders up in a calendar system so they are set for the exact date in which the item can be revisited. The key with any system in this category is that a trigger is put in place so that you go back to check what is needed to keep things moving forward.
Permanent files are those items such as legal documents, property records, and property improvements, investment trades, and certificates. Permanent documents also include identification documents such as passports or marriage certificates. With these types of permanent documents, it is best to have a back-up copy stored in the cloud or in a safe deposit box.
For many items that are tax related, there are variables such as the type of action, expense, or the event which the document records. Generally, you must keep your records that support an item of income, deduction, or credit shown on your tax return until the period of limitations for that record runs out [Source – IRS.gov]. Because retention can be variable, visiting the IRS.gov site can provide retention guidelines that vary anywhere between 1, 3, and 6 years.