Exactly how to set up a digital filing system for your financial paperwork and how long to keep everything. Plus some great tools to make it easier!

Part II: How I’m Organizing My Finances in 2019 (Organizing Financial Paperwork)

In Part I, we talked about organizing a cash flow system to set yourself up for financial success. I have accounts in two different currencies as well as business and rental accounts. And, my goal is still to spend less than 15 minutes per week managing my cash flow. How? Automation and organization!

I’ve totally gotten into this whole organizing thing year (and I can’t even blame the new Netflix show with Maria Kondo since I haven’t watched it yet!).

Exactly how to set up a digital filing system for your financial paperwork and how long to keep everything. Plus some great tools to make it easier!

In this part, I want to share how I organize my financial documents and files. As a CPA, I have plenty of experience with this. If I added up all of the hours I’ve spent organizing financial paperwork, I’m sure it’d be months of my life.

Why Digital Filing Systems?

It’s 2019 friends! That alone is a reason to go digital. It just makes sense to store your documents electronically, other than a very few original documents like birth certificates, marriage certificates, diplomas, original loan documents, etc.  But even a copy of those documents should be stored electronically as well.

You can’t type keywords into a large 3-drawer file cabinet and instantly find your documents. And virtually all companies now provide paperless statements (it saves them money plus some even offer a discount to the customer also!). If you’re still keeping drawers of paperwork, it’s time to move on.

My own priorities regarding my financial documents are to:

  • Be able to easily find the documents I need in the least amount of time possible
  • Have copies of documents available wherever I go
  • Have a system that is as automated as possible, essentially requiring as little of my time as possible
  • Not only eliminate physical clutter but digital clutter as well (it has to be organized!)

I shredded nearly all of my past documents, scanned in a few and haven’t had a single instance of regret that I didn’t keep more of it.

How to Organize Financial Files

I’ve changed my organization system several times, but have now perfected it…that is, until I change my mind next year and “improve” it (ha!).

First of all, I have elected paperless documents on every single account possible (of course, since I live in Shanghai, this is a necessity for me anyway!). I use the following structure to organize my financial documents:

1-Financial Goals

2-Personal Financial Statements (note: this is where I keep my budget, cash flow, and net worth statements)
Years (2017, 2018, 2019…)

3-Debt Management
Mortgage
Auto Loans
Credit Card Info

4-Insurance
Auto Insurance
Homeowner’s Insurance
Umbrella Policy
Life Insurance
Disability Insurance

5-Tax Documents & Planning
Years (2017, 2018, 2019…)

6-Savings & Investments

7-Retirement Planning

8-Estate Planning

9-Other Financial Info

Pro Tip: I make filing part of my weekly budgeting process, so it doesn’t get overwhelming. I download the few documents that I’m not able to automate through FileThis (discussed below), such as pay stubs received that week. Anything from an email that needs to be filed (such as rental receipts from my property manager) I try to file whenever I receive the document. I usually save them directly to Dropbox from my iPhone or iPad (there’s a little trick to being able to save them as a PDF, see this tutorial here).

Tools of the Trade

Dropbox

Image result for dropbox iconI’ve tried numerous cloud storage solutions, both personally and professionally. My favorite is simply Dropbox (there’s a reason it’s so popular!). In addition to the iOS app for my mobile devices, I also have the desktop app, which makes it seamless to sync documents between my laptops and the cloud.

With Dropbox, you can organize your folders and files in just exactly the same way as you would any files on your computer, but with the benefit of also being able to access them everywhere online. And, Dropbox has numerous integrations that any productivity junkie (me!!!) can love.

One of the other great things about Dropbox is that it’s also free for up to 2GB of storage. I started with that, and then happily upgraded to the Plus plan when I reached the limit, which is about $99/year. There are a few subscriptions that I find worth the money, and this is one of them.

FileThis

Image result for filethis iconFor the first full calendar year in 2018, I’ve also been using FileThis to help automate document filing. FileThis is basically the equivalent of using a budgeting software that pulls in your bank transactions, except that it pulls in your documents.

It even has a Dropbox integration, so my documents can go directly to a folder within Dropbox. FileThis is free for up to 6 connections and the premium version is $20/year for up to 12 connections. I use the premium version and connect bank accounts, investment accounts, utilities, and loans. The only thing I’ve found that I’m not able to connect is paystubs (and of course anything related to our life here in China).

Adobe Acrobat DC

Image result for adobe acrobat dc iconAfter using Adobe Acrobat DC for work, it was too annoying to not have it at home, so I also have a personal subscription. This software is a more advanced version of Adobe Reader and allows you to combine, edit and comment on PDF files really quickly. It also allows you to rearrange pages and add or delete them.

For example, I frequently use it to combine expense report files (a big part of our life living abroad) into one PDF and move the pages around. Hypothetically speaking (of course…) this is especially useful if you have a husband that dreads doing expense reports and delays them for months.

A subscription is $15/month, which definitely isn’t cheap, but there are other alternatives out there. Just search for “PDF editor”. I’m just personally attached to Adobe products.

How Long Should You Keep Financial Documents?

I receive this question a lot: How long should I keep my documents? And, really this question becomes a lot less applicable if you start to file things electronically. If they’re organized neatly in digital files and not cluttering up your house (or attic, or basement or garage…), then you probably will just keep them forever.

However, I know most of us do have old paper files that we want to know whether or not to toss.

Receipts

Is there anything that seems more like a jumbled mess than a big pile of receipts? Well, the good news is that there are very few receipts that really need to be kept. I personally use a small box with tabs for each month.

I keep these receipts for a couple of months and then throw out a month’s worth of receipts at a time. Most items are only returnable for 60 days, so it’s really all that’s necessary.

The exception is large ticket items, such as electronics. I scan these receipts into a folder labeled “Purchase Receipts and Manuals” and then toss them. This is important if you ever need to substantiate an insurance claim.

Any receipts that relate to deductions on your tax returns (this is especially important for those with businesses) should be kept with your other tax forms and documents (ideally in electronic form!).

Monthly Bills, Bank & Debt Statements

Monthly bill statements, such as electric, phone and cable bills really only need to be kept for a year at the MOST. This will allow you to refer to how much the bill was for the previous year, but that’s all that’s really useful.

Although you may need bank statements in case of a tax audit, I still say to shred them for a year at most and then shred them. Many of the big banks allow you to access electronic statements for up to 7 years, so you shouldn’t have them physically taking up space.

Credit card statements should be kept for a couple months, then can be shredded as long as there are no discrepancies.

On the other hand, debt statements such as for mortgages, auto loans and HELOCs, should be kept until the debt is paid off plus another 5-6 years past the sale of the property.

Tax Returns & Documents

Tax returns should be kept for 7 years, along with accompanying backup (i.e. tax returns, tax forms, receipts to back up any deductions). The IRS has 3 years to audit your returns, but if they think you’ve substantially underestimated your income, they can go back 6 years.

Related to taxes, you should also keep all documentation that includes investment purchases, including stocks, bonds and other investments. This will help substantiate your capital gains or losses.

I personally have kept copies of my tax returns going back to 2003 (but not all the backup except for the past 6-7 years) because I think it’s interesting to go back and look at them. Some people keep sentimental items like photographs and family heirlooms, I keep tax returns.  What can I say? I’m a nerd.

­­­Contracts and Other Documents

Rental/lease agreements can be shredded after you move out (and receive your security deposit back of course!).

If you own a home, you should keep detailed records of your purchase (i.e. your closing statements) and any substantial improvements to the property. If you use it as your personal residence, the odds are low that you’ll have to report it for taxes, but it’s possible that you could move and rent it out in the future, or otherwise not live in it for an extended period of time. Just like tax records, keep these documents for 7 years after the sale.

Final Thoughts

Finding a process for organizing financial paperwork is an essential part of simplifying your finances.

I highly recommend that you just start now, no matter how disorganized your past documents are. Don’t wait until you get all those past files scanned into files to start implementing this process. Trust me, later you’ll be so glad you did!

I’m not an affiliate for either Dropbox, FileThis or Adobe Acrobat DC, I just love their products and want to share my favorite tools!

 

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2 Responses

  1. ” I usually save them directly to Dropbox from my iPhone or iPad (there’s a little trick to being able to save them as a PDF, see this tutorial here).” I can’t see the link for the tutorial.

    Thanks for being a financial nerd. (But keep your pictures!!!!)

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