Money Matters

The financial cost of disorganization

March 25, 2014

Being disorganized costs you not just time, but money. Here’s how to tame the paper monster.

Jean Chatzky PhotoThe high cost of clutter

These days, you’re probably doing all you can to save a buck. Clipping coupons, snapping up Living Social deals. Many of you have probably given up your morning cappucino, your lunches out, your premium cable.

So you might be surprised to learn that despite all the changes you’ve made, one you’ve very likely overlooked is still costing you money: Disorganization, in the form of that stack of bills on your kitchen table or the baskets of paperwork on your desk.

Disorganization not only results in needless late fees and money dropped on express shipping, but every hour that you needlessly spend looking under piles, or wondering where you put this or that, costs you real dollars and cents. It’s an hour you’re not able to bill to a client. An hour you can’t spend at the gym, working on getting in shape and bringing your healthcare bills down. It’s an hour that you could be spending with your kids or on a date with your spouse.

Oh – and it makes you miserable. Research has shown that people who can find what they need “quickly and without a lot of hassle” are significantly happier than those who can’t.

Here’s my system for getting your financial papers in order. I call it “Bills In A Box.”

Gather supplies

The point here is not to boost sales at The Container Store or Staples. But you do need some tools for battle. I like to have hanging folders, files, and labels (and yes, I use a label maker, then again my handwriting is atrocious). Stamps and envelopes (so you’re not spending time scrounging for postal supplies for the bills you still pay by hand), post-its, a stapler, and pens or pencils. Then, purchase a box to keep everything in, something that’s portable, large enough to fit your folders but small enough to bring to your accountant’s office or cart from room to room (I find that paying bills on your porch, on a beautiful day, makes the process much less excruciating).

Label your folders

Next, label those hanging folders according to your needs. I use these categories: Home and auto; healthcare and insurance; saving and investing; income and taxes; and credit cards and other debt. Then you use the file folders to sort subcategories, so if you have two credit cards, you can create a manilla file for each account, and put them both into the credit cards file. When the books close on the year, you can start new files and move the old into a standing filing cabinet or box.

Gather everything into one big file

Now that you have a system in place, it’s time to dig in. If you know how to clean a closet, you know how to sort and organize your finances. But if you’re like most people, you have paperwork scattered at work, in various purses and briefcases, in the kitchen and your home office. Go around collecting it all, put it all in one big pile, then start sorting into three smaller piles: Shred, pay and file. The pay file should be taken care of on the spot – and from now on, aim to pay bills as they come in.

Know what to keep, file and shred

Shred after a month, or when you reconcile with a bill or bank statement:

  • ATM receipts
  • Prospectuses and other information about investments you’re considering
  • Other receipts, assuming you’re not planning to return the item and you don’t need it for a warranty or rebate

Shred after one year, or when end-of-year consolidated statements come in and you’ve filed taxes:

  • Bank statements
  • Brokerage statements
  • Cell phone, cable, telephone, and Internet statements (unless you’re deducting them for work or home office-related expenses)
  • Credit card bills
  • Pay stubs
  • Social Security statements
  • Utility bills

Shred after seven years, or when no longer needed for taxes:

  • Child-care records
  • Flexible-spending account documentation
  • 401(k) and retirement plan year-end statements
  • IRA contributions
  • Purchase records for investments
  • Records of charitable donations
  • Records on houses you’ve sold
  • Tax returns with back up documentation

Keep as long as you own the asset:

  • Insurance policies
  • Receipts for important purchases (technology, art, antiques, jewelry)
  • Receipts for renovations or investments made on your home or property
  • Titles
  • Warranties

Keep forever, in a safe or safe-deposit box (with a second copy in a safe location off-premises):

  • Adoption papers
  • Appraisals
  • Birth certificates
  • Citizenship papers
  • Custody agreements
  • Deeds
  • Divorce papers
  • Financial aid documents
  • List of credit card numbers, bank and brokerage statements, insurance policies and toll-free contact information
  • List of important contacts, like your lawyer, accountant, doctor, and relatives
  • Military records
  • Powers of attorney
  • Stock certificates
  • Wills and living wills

Finally, once you have everything sorted, it’s all about maintenance: When the mail comes each day, sort it, pay the bills that are due, and get the whole mess off your kitchen table. For those days when you don’t have time to deal with it, set up a to-be-filed folder and visit it as soon as you can, before the paper monster takes over. Again.

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