We are in our last 2 weeks of this 16 week Challenge to reclaim your home and reclaim your life! And with Tax Day in the US this week, what a better time to focus on Paper Management!
This week’s is one that so many of us need — whether it is because we could use a complete overhaul of the piles and drawers that have been neglected for years, or because we have put a decent system in place in the past, but could use a refresh on whether it’s still working for what our needs are today.
The goal is to go through your paper piles and files, keeping only what’s necessary, and then establishing the right system for yourself to help receive, process, and either dispose of or file paper. Are you with me?? It’s a big one. This is likely not a one-day project for a lot of you; it’s one you’ll need to break down into phases, and pace yourself. You know it is. Buckle up, but let’s all commit to really looking at this one, because I bet for most of you, PAPER is at the top of your enemy list in your home!
Week 15: Paper Management
Level 1 Challenge: Let GO of What You No Longer Need. The first step in getting a handle on paper is really scrutinizing what you need to keep, and what you don’t. This may mean gathering piles from around your home, as well as going through your existing files, to rethink what you’re keeping, why you’re keeping it, and how long you need to keep it. This can certainly be an “it gets worse before it gets better” project. Dealing with paper can be overwhelming. This multi-step process is geared towards helping you tackle whatever is in front of you.
How to tackle this one: First, you’ll want to make sure you’ve got room to work, and your sorting system set up. Whether you work on the floor or in your office or spread out across the living room, you’ll want to make sure you’ve got a process to work with from the start. ALSO, you may end up doing this in a few waves; for those of you who aspire to be a “touch something once” kind of person, you may not have that luxury here.
The MINIMAL categories you’ll need:
1) TOSS – SHRED – any paperwork you’re discarding that has personal information on it, not just name and address, but something that can be tied to your identification or private information.
2) TOSS – RECYCLE – any paperwork you’re discarding that does not have personal identification information on it, and the material is genuinely recyclable (for instance, is not laminated).
3) KEEP – IMPORTANT – This pile will be further sorted later, as you have you room to get into details
4) KEEP – SENTIMENTAL/PERSONAL – These are papers that are important to you for sentimental reasons, but do not have financial or legal ramifications. (e.g. – certificates of achievement, letters and correspondence, magazine articles, school papers,
5) TAKE ACTION – When you come across a piece of paper that triggers a “I need to do something with this” response — pay, rsvp, fill out a form, send to someone, etc. — it goes in this pile, not to be filed yet.
Onto the sorting of deciding whether something goes in a KEEP pile or a TOSS pile:
First, I want you to think about what has changed in your life time in regards to paper records. So much of what is important today is available electronically, if we even get paper in the first place. This wasn’t the case when many of us began learning the guidelines about what to keep and how long to keep them. Credit card statement, bank statements, mortgage statements… these are all available online, and you can get them on the chance you actually need to refer to them after paying it.
Pay stubs are another great example of how times have changed. We used to get pay stubs attached to actual pay checks. We’d need to hold onto them until the end of the year and validate that the amount reported on our W2 was accurate. Today, with the modern systems available for both processing payroll and for retrieving the statement that was made available with your direct deposit, the risk that your W2 at the end of the year is wrong is miniscule, right? Even when there have been new W2’s issued some place, it’s been for things like “we didn’t add up the imputed income”, not “we missed including a paycheck”. So, the first thing I want you to keep in mind when you’re going through papers that have you confused or hesitant to toss are:
1) Can I get this again elsewhere if I didn’t have the paper? This one is about ACCESS.
2) What is the situation that will come up that will require me to present this information again? This one really goes to NEED.
As for what you need to keep, and how long you need to keep it, there are a lot of great resources out there that can help you with this. And also keep in mind: These lists are even conservative, since many of the things they say to keep are things you may not even receive in paper form any more. (For instance, if you get your pay stubs electronically, don’t feel the need to PRINT them, just so you can KEEP them. That’s going backwards!)
While you may find some conflicting advice here and there, most resources will be in the neighborhood of each other for short-term, mid-term and long-term categories:
What about taxes? Note: This information is gathered from a variety of sources, including the IRS. You should always consult your tax accountant to understand if s/he has different guidance for clients that differ from these guidelines. For more detail, review information from the IRS.
You may have heard “Keep your taxes for 7 years,” right? Well, turns out, that’s not really a thing; it’s just a conservative blanket that covers MOST people, even those most likely subject to audits for specific issues, so it’s what we see quoted most. The length of time you should keep a document depends on the action, expense, or event which the document records. Generally, you must keep your records that support an item of income, deduction or credit shown on your tax return until the period of limitations for that tax return runs out. I want you to figure out which category you fit in, from a taxation point of view. The lower you are on the list, the less you need to hold onto the details related to your tax filing submission:
- I or my spouse fill out the short form most years, because I (we) take the standard deduction.
- I or my spouse itemize, but typical things: Mortgage, some expenses, charitable deductions, medical, etc., but our income is straightforward.
- I or my spouse have potentially understated income by 25%. (e.g. you earned $100,000, but only claimed that you earned $80,000).
- I or my spouse own some very complex investments, not your typical brokerage or retirement accounts, but something much more elaborate. I or my spouse have submitted claims for losses due to bad debt or worthless securities.
- I or my spouse did not file a return at some point in the past.
- I or my spouse have been fraudulent in filings and claims made about earnings and deductions.
- I or my spouse own(s) my own business.
- If you are in group 1 or 2, you should keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later, if you file a claim for credit or refund after you file your return.
- If you are in group 3, you should keep records for 6 years.
- If you are in group 4, you should keep records for 7 years.
- If you are in group 5 or 6, you should keep your records indefinitely; there is no period of limitation if the IRS suspects fraud.
- If you are in group 7, you should consult your CPA to determine, based on your legal structure, assets, employer size and your individual situation, what is best.
Level 2 Challenge: Set Up A New System. Clearing out your piles and files and drawers can be a rewarding and cathartic process. You gain back space, sometimes from many different places, and you sometimes uncover important paperwork you thought was lost. But that’s only part of the way to organization. The rest is in making sure you establish the systems to manage paper that work for you best moving forward, so that you don’t find yourself in this situation again.
How to tackle this one: For this challenge, I want to talk about:
- Establish priorities, leading to establishing zones (The “Drawer” Assignment)
- Setting up a meaningful filing system
- How to combat paper overload at the root.
ESTABLISH PRIORITIES AND ZONES:
I often talk to clients about paper storage, and use the concept of “drawers” as metaphors for where things should be stored (not that they necessarily need to go in drawers).
“A Drawer”: These are your hottest files, your working files. Bills you’re paying this month. Forms related to an event next month. Paperwork you need to complete for your pending rollover transactions. This month’s receipts that you want to check against the next credit card statement that comes in. These are items that you need to get your hands on in the current time period. Once you take action on them, they’ll move to either a different drawer, or be discards.
“B Drawer”: This is your mid-term storage. Mid-term storage is items that are current in your life, and you may need to access on a regular occasion, either to take out of the file or put into the file. This year’s receipts for taxes. Files for active accounts like current loans or your current insurance policy. After the year runs out, you might actively weed through each folder to see if you need to keep items within there, but you may still need to keep the folder itself in this current-but-not-hottest files.
“C Drawer”: Longer term storage. Things you don’t need to access unless an unusual situation comes up. These would include old tax returns, discharged loan paperwork, real estate transaction information, old disability files, divorce paperwork, etc. Things you need to keep, but don’t need to have in your active space.
So, as you’re going through your important files that you’ve set aside, you’ll potentially be thinking of them in terms of which “drawer” they land in. It may also help you think about where you physically put them. If you’ve got the luxury of a lot of space for filing in the place where you actually process home administration work, that’s great, but not everyone does. Sometimes, you may analyze the space based on where you do the work. Maybe:
“A Drawer” is at the family hub spot, and it’s a small set of folders or a file box. It’s where you’ll likely pay bills, fill out forms, and mail them,
“B Drawer” is in the home office. There’s a drawer or two, or some file boxes, and a basic filing structure helps you keep order and find what you need. You’re in this space when you’re pulling together everything to do your taxes.
“C Drawer” is in the basement, in a water-tight file box. Some of it may even be in a safe deposit box, only accessed when you need it.
You see what I mean, I hope: Not all your files NEED to be in the same spot. They may be better organized for the way you want to live, when they’re separated out.
SETTING UP A MEANINGFUL FILING SYSTEM:
The definition of a meaningful filing system is one that helps you find what you need when you’re looking for it.
But there are a few other qualities that can make it MORE meaningful:
- It’s easy to get into and out of, to put items in or take items out (not jam-packed or in a tricky location)
- It’s located in a place you don’t hate spending time in
- It works with your VISUAL preferences to help make the aspects of FILING and RETRIEVING easier. Some example questions:
- Do you need to be able to see into clear plastic containers to know what you have?
- Do you need color coding to help group items together (“Green Folders are my Financial Files; Yellow Folders are Medical”)?
- Do you need things to be in alphabetical order, or do you have another way to set up the order that folders will follow?
- Do you need items out on surface or desk top, or on a wall, or do you need to have everything out of sight (not in an out-of-sight-out-of-mind kind of way)?
Once you’ve plotted that out a bit, it’s time to make sure you’re grouping your “KEEP” info in ways that are meaningful to you for retrieval later. This could be major headings like Home, Investments, Auto, Health and Medical, Personal Documents, Educational documents, etc. There is no right answer, but finding the right groups that are relevant to your life. One challenge to setting up a filing system for papers is that you can get too broad “STUFF RELATED TO OUR HOUSE”, where you can’t find what you need because it is mixed up with too many items. Sometimes, a filing system can be too fine a system, which can get in your way of finding what you need later because there are too many options on where to look, or if you’re not remembering the EXACT title you used, you’ll not look for it. An example of a narrow system:
– House Items
– Folder 1: Warranty
– Folder 2: Annual Inspection
– Folder 3: Manual
– Folder 4: Filter Receipts
It may not always be obvious that ONE folder, and not FOUR separate ones, will suffice. “Furnace” can be just fine to hold items, especially ones you may never retrieve again (knock wood). If you needed something for the furnace right away, you’d find it. (By the way, this one is a shout out to some of the ADHD folks out there. This one is often a challenge to folks who have issues with categorization… too deep or too shallow.)
COMBAT PAPER OVERLOAD AT THE ROOT:
- Check your paper sources (typically mail and kids’ backpacks) every day, and work to eliminate the items that don’t even need to make it into a pile in the first place. Have a shred and a recycle station convenient, and immediately remove the items that aren’t KEEP-worthy, before they even hit the kitchen counter.
- Set up a process in your home which helps you sort the paper before it gets in one big, overwhelming pile. Consider an inbox system in a convenient place, with the top action-driven categories. The categories that often work for people: PAY, ACT, FILE. Pay is “I have to pay this, and when I’m ready to pay bills, I’ll grab these.” Act is “I need to do something with this — fill out a form, make a call, send an email, research something; I’ll need to set time aside to move these forward“. File is “I need to keep this, either short-term or longer term, but no other action is necessary right now with it.” Some homes may have another category, “For someone else,” for instance, “My husband needs to look at this, and this is where he’ll look for things he needs to pay attention to.”
- Set up a ROUTINE that helps you move each of those categories forward. “Purposeful Piles” are great, but if they just grow, things will get neglected and lost. Determine a frequency that will help you move through these categories successfully. Will you pay bills every week? Do you review “ACT” twice a week? Do you take the FILE pile once a month to deal with? Go one step further: Put a recurring appointment in your calendar to help you stay on top of this routine.
- Reduce the amount of paper you even receive any more. Unless there’s an absolute reason you need to have and process paper for things like your investment accounts, bank statements, credit cards, mortgage, auto loans, student loans, insurance and utility bills (among other things), consider going to a paperless option. If you are a VERY tactical person and you know of yourself, “I will never actually pay my bill unless the mailperson brings me a piece of paper telling me to do so,” consider your electronic options for e-delivery of bills (or better yet, set up auto pay options).
- Think about what going paperless might mean for you, where you not only receive very little in paper form, but what you do have, you convert to digital storage. (We’ll talk more about digital storage next week, but for some, this is a tempting and solid solution.
- Set up a regular appointment, once or twice a year, to go through your existing system and folders, and to purge what you no longer need to keep. After taxes are done are a great time, and another fall clean out might be good, too. (You’ll find both of these periods of time are also coinciding with some free community shredding events in your area!
How The Challenge Works:
As With Every Week, Your mission:
1) Take on Level 1, and if you’re feeling up to the challenge, Level 2. If you’ve already got those covered, identify a challenge for yourself that you know you should be tackling.
2) Whenever possible, take BEFORE and AFTER pictures. You don’t have to share them with anyone but yourself, but it is a fantastic way to (a) identify clutter that’s become invisible to you over time and (b) truly measure and appreciate your progress.
3) We’re all about letting things go… be critical about what you’re keeping and why you’re keeping it. Always ask yourself these critical questions to help decide if you should hold onto items:
- Is using this item part of my current life or likely future?
- If I didn’t have this item and needed it for some reason, is it easily replaced or borrowed?
- Can someone else use this more than I seem to be using it now?
- Am I keeping it for a “maybe some day” or a “just in case” option? How likely is that situation? And am I keeping more in that category than I should, given the space constraints I have?
- Is it part of my past, and holding onto it reminds me of a former self? And am I keeping more in that category than I should, given the space constraints I have?
4) Stay FOCUSED on this task. Know what FINISHED looks like, and don’t get distracted by other projects or areas of attention that cross your path while you’re on this assignment.
5) Have a plan on where things will go — give away to someone you know, donate, sell, recycle or trash. This Challenge isn’t just about creating new piles that don’t have a future!
6) Work in manageable chunks of time and energy. It’s a marathon, not a sprint!
7) Celebrate and reward yourself for a job well done!