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?
Money Corner: 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 longer-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 longer-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 large 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 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, RESP statements and physical activities receipts (to later claim on your taxes). To keep the storage box from overflowing after some time, you need to remove and shred the older documents, on a regular basis. For example, you can shred your credit card statements after 1 year.
Simplify: 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.
Money Date: 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, write the required cheques, review your new statements and file your new documents in the longer-term cabinet. You can also empty up your wallet from all your receipts, review them and discard the unnecessary ones. If you have a spouse or partner, the money date is your chance to discuss any lingering money issues.
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.
This article was originally published in The Chronicle on March 12th 2014