MMP046: How to Organise Financial Paperwork [Podcast]
This week we’re going to be talking about How to organise financial paperwork. Every day I see clients who are catastrophically disorganised with their financial papers, and as a result have a kind of constant, low-grade anxiety that they might be missing something or not making the most of what they have.
In this podcast session I’m going to be covering what you need to know, and what you need to do to organise your own financial affairs for maximum efficiency, and minimum paper storage.
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One of the most useful things I can do for my clients is to help them organise themselves. They are often amazed at how quickly I rattle through three massive carrier bags of stuff they have amassed, getting rid of most of it. For some clients, this is a part of every review. They never file anything, and just hold it all in one folder until I turn up every six months or year to sort it out for them.
But I can’t help eery one of you, and I don’t need to. The rules I use to burn through the huge weight of financial paperwork are easy to describe. I have internalised them and they come naturally to me now, and they can to you too.
It’s worth mentioning that everyone’s different. I once sat in a solicitor’s house sorting out his stuff. The first file he gave me was his mobile phone bills stretching back twelve years. I put them all in a massive bin bag and just kept the last year’s worth. I could see him sweating, and later found out that he kept the bin bag, putting it in his loft in case he ever needed it in future.
Quite why anyone would need to refer to mobile phone records from years ago I beyond me, unless you’re the subject of the Leveson Inquiry!
So we’re all different, and my system might not work for you. But hopefully you can take my suggestions and tweak them for your particular neuroses!
As we go through this, remember that the only link you need to remember is the shownotes link for this session: meaningfulmoney.tv/session46.
Everything you need to KNOW
OK, three things you need to know before we get to the practicalities.
1 – You need to keep a lot less paperwork than you think
Thing about what it is you need from your financial organisation. You need to know where you are, and where you’re going. You may need to know how far you’ve come in the last year. But you probably don’t need to keep anything like as much as you are.
One thing which I’m sure you are aware of is the amount of crap that comes with financial documentation. People’s biggest problem is that they don’t know what to keep and what they can safely throw away. So they keep everything as a kind of default position.
Let’s say you get a statement from your ISA provider or mortgage company. The actual statement will probably be on one page, or maybe two or three. Then there will be a newsletter, maybe a questionnaire and a pre-paid envelope to send back the questionnaire. And there will be seventeen pages of supporting info to go with your statement. Of all this, you really only need to keep the page telling you what you’re worth at the date of the statement. If you want some kind of idea of progress, keep last years, and the most recent one, but no more than that. If you want to keep records further back than that, you should take the values from the previous years’ statements and put them in a spreadsheet or just transfer them to a sheet of paper.
In these days of internet access to investments, paper statements are increasingly obsolete, but if you must keep them, just keep the most recent one or two.
2 – Envelopes are the work of the Devil
I thought this deserved its own sub-heading, because if there’s one things that makes me so cross it’s the habit that most people have, of filing stuff in the envelope it came in.
Some people do at least write on the envelope what is inside it, which is marginally less annoying, but only slightly. Is it any wonder that people don’t know where things are when they are filed in a series of identical envelopes.
If I ran the country, I’d make this an offence punishable by electrocution, seriously.
Get rid of envelopes when they arrive. Take the document out, discard the envelope. There – that’ wasn’t so hard was it?!
Thanks for bearing with me through that rant – I feel better now.
3 – How long should you keep everything?
This is what it really comes down to. The fact is that there is no statutory length of time you should keep documents. HMRC suggest that you keep any tax-related documents for 22 months after the end of the tax year to which they apply. A weird-sounding length, I know. But this corresponds with the important deadline of January 31st in the tax year calendar. See Session 44 [LINK] for why that date is important. So if this current tax year ends on April 5th 2014, the suggestion is that you should keep tax-related documents until January 31st 2016.
What about other types of documents? Here is my suggestion for how long you should keep different types of document:
- Bank statements: 1 year
- Utility bills: 1 year maximum, probably just the most recent one
- Employment and tax related documents like P60, P45 and payslips: 2 years
- Policy documents for insurance: The term of the policy
- Investment statements: Just the most recent copy.
- Receipts: For the life of the purchased item
We’ll come to the practicalities of filing documents in a second, but do keep these things in mind. Remember also that in many cases you can get the information form other sources. You can usually get a copy bank statement between two dates in the past, for example. So don’t be paralysed with fear that you may throw away something important. Remember the golden rule, if you are in any doubt, keep it. You can always ask someone for help and advice on it later.
So, bearing these things in mind, let’s get practical, shall we?
Everything you need to DO
To get organised for the first time, you’re going to need to set aside some time. It might take you a couple of hours; it might take a couple of days, depending on how much stuff you have hoarded so far. Here are six steps to financial organisation heaven.
1 – Gather your tools
You’re going to need some stuff to make organising yourself – dare I say it – fun.
The first thing to get hold of is something to hold your files in when they are all sorted. If you have room for a filing cabinet, then that’s great, but many of us won’t have that amount of space. If you don’t, then get yourself one or two expanding filing boxes. [Amazon affiliate link] I suggest a foolscap size one rather than A4 as it’ll give you more room.
Then you need some card folders. The ones I use are called square cut folders and they are just a piece of thick card which you slot your papers into. There are no clips or flaps, and you don’t need those. They make the process longer and more hassle, if you have to hole-punch everything. Again here are some examples. [Amazon affiliate link]
You need a decent marker pen to label the folders, or you could invest in a labeller from Dymo which have come a long way from those things which you used to have to spin a letter wheel and then click the handle together. We have two in our house, one for quick and easy labelling and one which connects to the computer for serious labelling sessions! [Amazon afilliate links]
You may want to use plastic wallets, but personally I can’t stand them as they’re tricky to get papers in and out of and they tend to look messy very quickly.
Are you getting an insight into my OCD nature here?!
2 -Clear some space
If you have amassed any volume of paperwork at all, you’re going to need some space to clear the decks. So clear your kitchen or dining room table, or your kitchen worktop of everything you can and give yourself as much space as possible.
Essentially, you need space for four piles of paper, plus your labeller and your pile of folders.
3 – Collect all your paperwork together and complete the first pass
We’re going to sort your financial life out in two stages; this is the first pass.
You need to bring everything you have together into one big pile. If the pile is so big it’s going to fall over, then make it two or three or ten piles but start with one of them.
At this stage, don’t differentiate between water bills and electricity bills, or between bank statements and mortgage statements. We’ll get to that in a sec. For now you want to take each item from the top of the pile, and discard the envelope it came in, plus any supporting bumf like I talked about earlier. Identify the most important sheet or sheets in the pack and Ask the following question:
Do I need to DO anything with this document?
In other words, is there an action you need to take? If not, then you have a second, binary decision to make:
Do I need to keep this, or not?
We’ll look at each of these three outcomes – Do, File and Shred – in just a minute. But the key to rattling through the organising process as efficiently as possible is never to place something back on the first pile. Make a decision about Do, File or Shred – your first thought is probably right – and move on to the next document. You’ll have another opportunity to look at each document and but the time you get to that, your subconscious will have ratified your first decision or suggested an alternative.
4 – Do
If you have answered yes to the question “Do I need to DO anything with this document”, then you should mark in pencil on the document what action you need to take, or you could write on a Post-It note.
Example actions might be to pay the bill, or maybe to query something with your electricity supplier. If there’s a clear action you need to take, then put this document in a pile called DO. No need to put the documents in folders yet; this is the first pass, remember.
There’s no need to DO the action yet either. This is your filing day. If you get bogged down in completing tasks, you’ll never get your filing done! That said, if you realise you should have paid your credit card bill last week, then do it now.
You will end up with a pile of to-do’s all in one place, which then you’ll need to work through to complete. When you have completed the task for each document, you should note down the outcome and then file the document in the right place…
5 – File
If there is no action to complete on a document, or if you have already completed the necessary action, the document can be filed.
You need to keep one folder for each provider, policy, or account. So have one folder for your electricity, and another for your gas; another for water, and another for phone and internet. One for each pension plan or investments account. Mark the name of the file on the front of the card folder and place the document inside. If you are using an expanding filing box, you may not need these folders at all – the pockets that the box is made up of will act as folders – no need to add more weight to thing by adding folders too.
Have the most recent document at the top of each file, so when you need access, you can pull out the folder, open it up, and the most recent document is staring at you.
If you are adding to the file, place the new document on the top and remove the oldest document from the bottom of the pile.
Group the files logically, so keep utilities together, investments, pensions etc. Within each section, store the files in alphabetical order, so that Fidelity comes before Hargreaves Lansdown.
In order for filing to be any kind of pleasure it needs to be done regularly. There’s nothing worse than facing a foot-high pile of papers. Do it weekly, or even every time a new document comes in. That way you’ll always be up to date.
6 – Shred
Anything which is old, or not required, but which has details unique to you like a policy number or name and address on it, should be shredded. You don’t have to shred the whole document of course, just rip off the address panel, shred that and recycle the rest.
Extra Tip 1 – Keep a Transaction Book
Here’s a little tip I picked up off an elderly client of mine called Betty. She has a little red book which she keeps at the front of her filing box and in it, she records every transaction she makes. So, if a one-year deposit bond matures and she rolls it into another one, she records the date, maturity value, old account number and the new account number. She has ended up with a timeline of transactions and she knows exactly what happened when.
In these days of online everything, it’s a wonderfully analog way of keeping track of things, but if there are any listeners who trust the financial institutions we deal with to keep perfect records, do let me know. Personally I’d rather have a water-tight system to keep track of my own affairs.
It doesn’t have to be a book of course, it could be a spreadsheet or document saved and backed up somewhere.
Extra Tip 2 – Evernote
For those of you who like to do thing electronically, you should definitely check out one of the most useful bits of software out there for personal organisation. It’s called Evernote and it’s free.
I use Evernote and a Brother scanner to scan all my documents. Now I live with an analog wife, so we do still keep the paper files in exactly the system I’ve described above.
Evernote has apps on just about every platform, so I can access my documents anywhere on phone, iPad or laptop. They even have a scanner designed specially to work with the app, but that’ll cost you big bucks. There is a pro version of the app which costs £40 a year or something similar, and which gives you more space to upload and store things, but for most people the free account will be enough.
It’s not just a document store, it’s a note taking app, a reminders app, and lots more besides. It is becoming my digital brain, remember stuff for me that I just can’t hold in my memory. But for storing documents and being able to recall them instantly through search, tagging and even a virtual version of the folder system I’ve described above, it’s hard to beat.
So that’s how I organise myself, and how I organise many of my clients. I had a woman hug me once after I did this for her. It was the first time she’d ever been so organised and the mental release it brought was palpable. She’s been good enough to keep up to it too…
Let me know how you get on and, as ever, leave me any comments below.
This week’s reviews[Read from iTunes]
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Term: Budget Deficit, National Debt
In the last few years we’ve heard a lot about the budget deficit, and the national debt. All the talk from the treasury about austerity and how we have to get the deficit under control sounds very serious, and it is, but what does it actually mean?
Well, the budget deficit is simply that amount our government overspends every year. The treasury receives the income from tax, and then spends it on all the stuff a government has to look after like roads and hospitals and regulation of business and goodness knows what else.
The fact that we have a budget deficit means that as a nation we are breaking the first rule of financial success, which is to spend less than we earn. Because we’ve been doing that so badly (currently to the tune of £111 Billion per year), we have built up the mother of all credit card debts. We keep adding to it and adding to it, so that our national debt now stands at about £1.2 Trillion. Which is a lot.
So the budget deficit is the amount the government overspends each year, and the national debt is the total we owe, as a nation. The good news is that no-one is calling in the debts, and we can afford the payments.
Bit of a static week this week on the old weight loss. I stayed exactly the same thanks to not making it to the gym at all. Tsk tsk, not good enough! Hopefully I’ll have more progress to report next week…
Next Session Announcement
Next time we'll be talking about investing for income. If you have a question on this subject, or any other financial query that you want answering here on the show, then the best way to do that is to leave me a voicemail at meaningfulmoney.tv/feedback
That's it for this session of the MM podcast, I hope it was helpful. Did I miss anything? Do you have any questions? If so, please leave them in teh comments section below.
I hope you enjoyed this session. Thanks for listening – I'll talk to you next time.