Getting on the Road to Financial Freedom - Page 2 of 6

Getting on the Road to Financial Freedom

investments later, you may need to demonstrate the cost basis of your investment to the IRS. Bach notes, however, that you don’t need to keep those prospectuses that mutual fund companies mail you each quarter, so you can safely toss those.

Additionally, Harriet Schechter, author of Let Go of Clutter, says, “When in doubt, throw it out,” when it comes to things like magazine articles, seminar handouts, and other “resource” materials you may have collected over the years.

In case you need any motivation, first consider all the benefits of getting rid of piles upon piles of paperwork and creating, for example, a decent filing system for your financial records. Schechter says that well-organized people can eliminate clutter and the stress related to it. They can also prevent piles of mail from accumulating, shed sentimental stuff without regret, and manage “mental clutter,” she says.

To make an effective filing system, experts recommend alphabetizing your relevant documents by subject or category. But don’t make the mistake of having too many or too few categories. A dozen broad categories should be the maximum in any filing system, Schechter says. Therefore, a sample file index might include categories for:

  • Banking records (including checking and savings accounts)
  • Bills paid (where you file regular monthly expenses)
  • Budget (for itemized listings of all your expenses, income, and assets)
  • Mortgage
  • Receipts
  • Credit cards (useful for storing receipts, statements, and contracts)
  • Insurance (auto, property insurance records)
  • Investments (such as 401(k) and mutual fund reports)
  • Taxes

Once you’ve got a working system, of course the final step is to stay on top of your paperwork, so that it doesn’t spiral out of control again. Experts say you should resist the urge to have general mail files—like the dreaded, all-purpose “in” and “out” baskets that seem to occupy almost every home office and work desk space. Instead, create a paper-flow system that instantly tells you what you’re supposed to do with the mail that’s held there. For example, to quickly sort through mail—and it’s best to do that the same day that it arrives—you can put it into categories labeled:

  • “To Pay” (for bills, charitable solicitations, etc.)
  • “To Read”
  • “To File”
  • “Correspondence”
  • “Pending/Follow-ups”
  • “Events/Invitations” or
  • “To Share/Forward”

Once you weed through your files, purging unnecessary paperwork and reducing the amount of piles you have stacked up, chances are you’ll be a lot clearer about your finances—and certainly better organized. What’s more, if you take a few minutes each day to tackle your paperwork, you’ll save yourself many hours—if not days—of having to wade through a morass of papers later in the year when you’re trying to find some important document. This is particularly true when tax time rolls around. Imagine how great it would feel if you didn’t have to go sifting through old piles of paper trying to justify all your tax deductions. Instead, you could simply turn over to your accountant or to a paid tax professional a nice, neat file of well-organized receipts and records. I can’t guarantee that you’ll be paying zero taxes … but