As the old saying goes “Cluttered space is a cluttered mind”. The same applies to your finances. When you are lacking coherent organization or you have a messy financial system, it can lead to poor financial decisions. That’s because you are unclear about where you stand, you don’t know what bills are due or overdue, and you don’t know what contracts are up for renewal. Consistently lacking clarity will fog your overall financial situation.
So how can you start getting organized?
First and foremost, dedicate one spot in the house to all your financial papers. This will avoid you searching your entire house every time you need a certain document. Your Money Corner will have 2 types of storage: a temporary one and a long-term one. The temporary storage can be a multi-layered paper tray. This is where you put any document/bill that you receive in the mail which needs your attention in the next few days. The long-term storage is where you put your documents once you have dealt with them. This can be a drawer in your home office, a cabinet, or a storage box solely dedicated to your finances. It is advisable to categorize your folders by type. 3 broad categories are house & car, personal and kids. Within these categories, you will create sub-categories. For example, the house & car category will have your mortgage papers, municipal taxes, utility bills, car registrations and insurances. The personal category will include investment statements, credit card bills, medical expenses and tax returns. The kids’ category will include the school documents and RESP statements.
Once a week, commit to spending at least 30 minutes in your Money Corner. That’s your time to log in to your online accounts, review your transactions, go over all the documents in your paper tray, schedule payments, review your new statements and file your new documents in the long-term storage. You can also empty up your wallet from all your receipts, review them and discard the unnecessary ones.
We tend to keep papers for much longer than needed. To keep your storage box from overflowing, you need to remove and shred the older documents, on a yearly basis. For example, you can shred your bank statements, credit card statements and utility bills after 1 year. As for your tax returns, you only need to keep the past 7 years. So anything older than 2009, you can safely discard.
We live in a digital age where paperless options are available for almost everything. Use technology to your advantage and sign-up for electronic statements for your bank accounts, bills and investments. Your financial institution will keep the statements available for 6-7 years. You don’t have to worry about losing them or filing them.
You also have to minimize your bank accounts and the number of financial institutions that you deal with. I recommend closing any bank account that is not serving a specific purpose and combine your retirement investments in one place, especially if they are smaller amounts.
Having your investments in one place will be more efficient when your financial advisor reviews your portfolio and can see all your holdings in one place.
Your Net Worth is similar to your financial weight. It’s essentially the total sum of everything that you own minus everything that you owe (debts, mortgage, loans,…). This exercise will force you to get organized in order to find up-to-date balances of all your assets and your debts. I find spring is a good time to do this exercise and compare the number to last year’s so you can see how you’ve progressed in the past 12 months.
Empowering yourself financially is an outside job first. Get your financial documents and systems in order so you are better equipped to handle bigger financial decisions.