We typically associate organizing and decluttering with overflowing closets and garages where we can’t park our cars. But disorganization can extend to not-so-obvious areas of our lives, like our finances. Unfortunately, the impact of financial disorganization can be far-reaching — with late charges, overdraft fees, missed goals and a sense of overwhelm often being the result.
On the other hand, decluttering our finances can have an empowering effect. When I began paying down debt, one of the first things I did was to organize my financial papers. Knowing where everything was and exactly what debt I had made me feel more in control. Now, when I work with coaching clients, we address organization early to pave the way for paying down debt and meeting other goals.
The good news is that it doesn’t take much to clean up your financial organization. With tasks that tackle your physical organization and money management, you can be on your way to a more streamlined and organized financial life in less time than it takes to clear out a garage.
1. Reduce your paper clutter
Receiving your bills and bank statements electronically can reduce your financial paper clutter and help you stay organized. So, if you still get most of your bills and account statements via snail mail, review which ones you can move to paperless billing.
For paper you already have on hand, assess what you need to keep. If you have five years’ worth of pay stubs and bank statements, get your shredder ready. According to the Federal Trade Commission, pay stubs, paid medical bills, credit card- and bank statements should be kept for a year. But if you can access them online, you may not need the physical copies. On the other hand, you should keep tax returns and associated documents for at least three years — up to seven years or more, depending on the details of your returns. Scan other documents that you want to access but don’t need physically.
2. Establish a filing system
Once you’ve identified the financial documents you can toss, organize what’s left. Gather all your bills and financial paperwork and decide how to store them. Common options include a filing cabinet, portable file box, expandable file folder or 3-ring binders. Designate a hanging file folder or binder section for each category of bill or documents — such as tax returns, retirement accounts, insurance policies, bank accounts, debts, etc. Within each hanging folder or binder section, use a folder or divider for each account.
For example, if you have four bank accounts, you would designate one hanging file folder for that category and place four folders inside — one per account. For tax returns, use one file folder per year and include one for the current year to keep receipts organized and place tax documents as they come in. It’s worth noting that you should store legal documents such as your car title, house deed and will in a fireproof box, home safe or other secure storage.
3. Organize your electronic files
Organizing digital files is essential with so much of our financial lives online. Whether you use your computer’s hard drive, cloud-based storage or an external hard drive, create a folder filing system similar to the physical system described above to organize the files you’ve scanned or receive electronically.
4. Assess your bank accounts
If you have multiple unused bank-, investment- or retirement accounts, review which ones you use and either close, consolidate or repurpose unused accounts — especially if you’re paying fees on any of them.
On the other hand, you might want to open up additional accounts to help you organize your finances. For example, when working with a client who kept blowing her budget, I had her open a no-fee online savings account to keep her income separate from her expenses. This shift prevented her from dipping into the next month's income. Similarly, having multiple accounts can help you separate your savings according to your goals. (Some banks allow you to create savings buckets within one account.)
5. Streamline your bill-paying
There are many ways to simplify how and when you pay your bills. Putting your accounts on autopay saves you time, mental energy and potentially money spent on late- and overdraft fees. You can sign up with each company or use bill pay through your bank. Consider going beyond bills and automating any recurring expense, such as charitable giving. Additionally, you can streamline your bills by reducing their occurrence. Switching to annual billing for subscriptions, memberships, insurance and other obligations, when possible, will reduce the frequency of payments, and in many cases, you may pay a lower rate.
6. Clean up your cash flow
Your day-to-day money management impacts your long-term goals and overall financial health, so organizing your cash flow is essential. If you don’t use one already, a monthly budget is the best way to prioritize your expenses and savings and ensure that your spending aligns with your income. Additionally, tracking your spending helps you stay on top of your budget and sheds light on what you need to tweak. Both budgeting and tracking can be done with apps, budgeting software, spreadsheets or pencil and paper.
7. Automate your saving
We covered automating your bills, but putting your savings on autopilot is equally, if not more, important. Waiting until the end of the month to save what’s left will probably not result in consistent and substantial savings, but automating it will ensure it happens. You can have a portion of your paycheck deposited automatically in a savings account or schedule automatic transfers from your checking to your savings.
8. Create a system for processing mail and paying bills
With little coming in the mail, paper bills and other mailed correspondence can get lost in the sauce. So, having a designated space and system for processing paper bills will keep you on top of things. Consider placing a tray, decorative mail sorter, magazine bin or other container where you open your mail, along with a recycling bin for envelopes and junk mail. When you open your mail, designate a place to put all due bills so you can grab them quickly when paying bills or budgeting.
Also, create a bill-paying station with everything you need to pay your bills and manage your finances. This can be a permanent home, such as your desk or a caddy stocked with the necessary supplies.
9. Audit your recurring expenses
With a good portion of your bills on autopay and paperless statements, it can be easy to miss a rate increase or service change. An annual bill audit — when you review all your expenses — will catch any unnoticed changes and help you assess your recurring payments. At least once a year, look at all your recurring bills to see what you can eliminate, reduce or negotiate.
This annual practice was a game changer for me when I was cleaning up my finances, often reducing my monthly expenses significantly. I then funneled the "found money" towards debt or savings.
10. Establish a routine for looking at your finances
Automation is your friend when it comes to bill-paying and saving, but that doesn’t mean taking a fix-it and forget-it approach to all aspects of your finances. It’s a good idea to get into a regular rhythm of working on your finances based on what works for you. This could mean a brief daily check to reconcile your checking account, a weekly check-in to track your expenses, a monthly meeting to review your budget, a quarterly appointment with a coach or advisor and an annual bill audit and credit check. Regular money meetings can help you stay on top of your financial goals and observe areas that need to be addressed.
Keep in mind, there’s no one-size-fits-all approach to organizing your finances — much like decluttering your home. When following these tips, consider your habits and rhythms and what routines you’ll likely maintain. Ultimately, the best organizational system is the one you will follow.