Many years ago I read, “The
Millionaire Next Door,” by Dr. Thomas J. Stanley & Dr. William D. Danko, and
it opened my eyes to the difference between the people who appear rich and
those that actually have a net worth of one million dollars or more. It
obliterated my previous assumptions that people with expensive homes, cars or
other material goods were rich. A pivotal point for me in the book is when the
researchers host a sort-of cocktail party to entice people that are
millionaires to participate in the study.
They provided champagne and fancy hors d’oeuvres, and they were
dumbfounded when the study participants didn’t want them. They wanted
Budweiser. The authors’ research revealed that millionaires were more likely to
be unassuming. 80% of them are first generation millionaires and self-made. They
were people who were frugal with their money. And frugal didn’t necessarily
mean cheap. While I don’t anticipate
ever being a millionaire, I think it’s useful to learn from the people who are.
With the current political and
financial climate likely to change, I’m considering how increasing interests
rates and changes to health care insurance options may affect me personally.
Now more than ever, I want to make sure I maintain an emergency fund, live below my means, and save for the future. Being financially stable and prepared
for emergencies depends on having a good organization system. It doesn’t require making gobs of money,
although that doesn’t hurt.
Organizing all of the financial paperwork
that an adult life requires can be a source of stress and chaos. It can also get expensive when records can’t
be found or bill due dates are missed. Five years ago, I read and followed
the tasks outlined in “One Year to an Organized Financial Life,” by Regina
Leeds with Russell Wild. By the end of week four, my home financial documents were
an absolute joy to behold. When I moved a few years ago and the system I
created didn’t transfer to my new home, I turned to this book again. For the
eight pages on how to create a financial file system alone, this book is worth
keeping in my home library. That said,
my system uses the basic points from the book and has evolved to address some
additional goals I have.
I want a filing system that is aesthetically
pleasing, located where I’ll use it, and works with my lifestyle. The flow of
paper needs to be consistent and no more complex than necessary. I want all relevant
financial information in one place when I need to do taxes, and I want it to
help me stay focused on my financial goals.
The components I use that I haven’t
seen in other financial organization guides include a shallow, trifold document
organization method that doesn’t use file folders, a process for managing receipts
that works for me, and an embedded financial planning and tracking system.
Financial Drawer Organization Hub:
My previous system used a two-drawer
file cabinet with hanging files, but I prefer to be able to easily see my bills
and other documents somewhat like an open shelving system. With my current system, I can see more at a
glance. Documents are easy to file, easy to view and access, and easy to
maintain.
Using a pull-out shelf
in a cabinet with a glass front door allows me to see all of my finances
at a glance. This would be easily adaptable to a shallow kitchen or dresser drawer.
The cabinet is located next to the kitchen and is easy to access when I walk in
the door, unload my bags and sort through mail.
Using 4’x6” index card dividers is
perfect for organizing bills that are folded to standard envelope height. A 10.5”x7”
drawer organizer box holds bills and standard paper folded in thirds like it
was designed for this purpose. The box also makes the files mobile if you need
to take them to your table or desk for any reason.
Taming Receipt Chaos:
Receipts have plagued me in my adult
life given it seems dealing with them should be so easy. Sadly, they seem to
congregate in places that weren’t organized or useful. I felt like I should
keep them all, but I didn’t differentiate between types of receipts or have a
defined place for them. Often they were
just stuffed in a folder.
Now when I get home, I immediately
move receipts from my wallet or shopping bag to one of two sections in my
filing system. For purchases like gas, food, entertainment, restaurants and ATM
transactions, I put those in the “Check & Toss Receipts” section. These are
receipts that I only need to keep long enough to confirm that the charge amount
is correct on my credit card or checking account. I can check this online as
needed or when I get my monthly statement.
For purchases of durable goods, auto
maintenance & repair, home maintenance & repair, out-of-pocket medical
expenses or tax deductible items, I put them in the “Receipts to Keep” section.
I have sub-sections for each of these types of purchases.
For expenses, online returns or receipts
with paperwork to be submitted for reimbursement, I’ll temporarily file them
under “Reimbursements Pending” in the “Receipts” section. When reimbursement is
complete, these can move to “Receipts to Keep” if appropriate or tossed. You
may also want to move this documentation to “Other Deposits” if it’s deposited
to a bank account and not just a credit card transaction.
Financial Planning & Tracking:
The financial planning and tracking
section of my filing system helps me know at a glance which bills have been
paid and what still needs to be paid. This is an absolute must for me when I’m
leaving town and need to take care of bills before I leave. It’s also extremely
helpful to plan ahead for expenses that occur infrequently.
I created a checklist (located at the end of this post) that
covers everything I want including what day each payment is due and when I need
to initiate the payment with online banking. Bills that are paid automatically
are grayed out so that I know they exist but I don’t need to manually make a
payment. I also include sections for my
income and savings that gets siphoned off from my paycheck to a separate
savings account. If this is more than
you need, you could create a simple list of your bills with boxes to check off for
each month of the year.
Filing Drawer Categories and Subcategories:
1. Receipts
a. Check and Toss Receipts: These are receipts that I only need to keep
long enough to confirm that the charge amount is correct on my credit card or
checking account. I can check this online as needed or when I get my monthly
statement. Examples of these types of purchases include gas, food,
entertainment, restaurants, and ATM transactions.
b. Receipts to Keep
i. Auto Maintenance & Repair
ii. Home Maintenance & Repair
iii. Out of Pocket Medical Expenses
iv. Other Equipment or Durable Goods
c. Receipts for pending reimbursement: Temporarily file papers related
to online returns or receipts and paperwork to be submitted for reimbursement.
These can move to Receipts to Keep if appropriate or tossed when reimbursement
is complete. You may also want to move this to Other Deposits if it’s deposited
to a bank account and not just a credit card transaction.
2. Financial Planning & Tracking
a. Bill Tracking: I created a checklist below that covers everything I
want including what day each payment is due and when I need to initiate the
payment with online banking. You could create a simple list of your bills with boxes
to check off for each month of the year.
b. Budget
c. Credit Score
d. Medical Bill Tracking: Check out my blog post, Creating Some Order in the Medical Billing Chaos, that details
how to track medical bills and insurance payments.
e. Retirement Planning
3. Banking: checking, savings or credit union accounts
4. Credit cards
5. Debt: mortgage, car loan, other loans
6. Deposits: pay stubs, other gifts, income or reimbursements
7. Household bills: home utilities, internet, phone(s)
8. Insurance: life, auto, health insurance policies and statements
9. Investments: include investment accounts and any retirement benefit
statements through work or Social Security.
10. Taxes: any taxes owed throughout the year including property tax and
federal estimated tax payments and any expenses that are tax deductible.
11. Banking supplies: checks, deposit slips and envelopes
I relish having a system that keeps
me organized and furthers my financial goals.
I want it to be easy to use and enjoyable to maintain. I don’t want any extra
steps that may discourage me from taking care of things immediately when I get
home, and this system works great for me.
I’ve been using it for quite a while now and am really happy with it.