Do-It-Yourself Filing System
One major key to a good budget is organization. A basic filing system is an easy way to keep all your documents and records handy and in order. Of course, there are a few things you need to do to make this system work. First, you'll have to free up some space for this endeavor. It doesn't have to be very big or very fancy — a simple filing cabinet will do. You'll need to designate enough room to hold your monthly bills and other financial paperwork. Starting with a well-organized space can keep your budgeting tasks flowing more smoothly, saving you lots of time and aggravation.
As soon as you have the proper tools to work with, go through all your financial records. Get rid of everything you no longer need, like old phone bills, gas receipts, even pay stubs. Toss out the instruction manuals for appliances you don't have anymore; trash the payment books from old loans that you've paid off. Remember to shred anything with personal information on it to protect yourself from identity theft. Consider this list of documents you'll need to hold on to for a while; keep them where you can find them easily in case you need them:
Tax returns. Keep these for six years. Include the full return, plus all related receipts for itemized deductions, in your file. Although the IRS usually only has three years from the date you file to audit your return, they occasionally get more time. For example, if they claim you've understated your income by at least 25 percent, they can hold your file open for up to six years.
Investment information. Any time you buy or sell an investment, hold on to the written record of that transaction. In addition, keep the annual summary your broker or fund company sends you at the end of the year. When tax time comes around, you'll need all that information to properly report your income. Also, save all the paperwork for any nondeductible IRAs you contribute to. That way, if the IRS tries to tax you twice, you'll have the proof to show the taxes were already paid.
Credit card and bank statements. Credit card statements are crucial for recreating expenses, and bank statements can include expenses as well as income outside your regular paycheck. When you come across tax-related items, highlight them and make a note in your tax file. Keep credit card statements and bank statements, including cancelled checks, for six years, filed along with your tax returns.
Medical bills. Hold on to receipts for all your co-pays anytime you visit a medical professional or fill a prescription. Keep the receipts any time you buy tax-deductible items, like eyeglasses or hearing aids. It's also a good idea to keep benefit statements from your insurance company, in case there's any dispute with the service provider. If you pay for your health insurance out of pocket, hold on to those statements as well.
Real estate records. For every property you own, you should have a file with following documents: the deed, property tax bills and assessments, receipts for major repairs and improvements, and any home warranties.
Personal documents. In this folder you'll place the records of your life, starting with your birth certificate. Also include your current passport, marriage license, divorce papers, paperwork pertaining to your children, military service records, and any other important personal information.
When you're done going through all that paper and have figured out what you'll be keeping, start setting up your files. Create a folder for each category. Clearly label your folders so you can easily find any documents you're looking for. Put all the folders in your file cabinet — and be glad the most cumbersome part of this process is finished.
Once you have a filing system set up, you'll need financial software, like Quicken or Microsoft Money. These programs deal with all the calculations, instantly track all of your account balances, and flow into your tax-return software at the end of the year.
To make sure no bills fall through the cracks, set up a payment schedule. Add each bill to the schedule the day it arrives, noting the due date. The simplest place to jot the due dates is on a calendar you use regularly. If you don't pay your bills as soon as they come in, set aside time every week to write checks for those bills coming due. If you use online banking services, make sure you record transactions in your checkbook. Remember to balance your checkbook each time, and reconcile it to your bank statement every month. Banks usually allow sixty days for you to bring errors to their attention. While you're at it, double-check your credit card statements when they come in, just to make sure there aren't any erroneous charges listed.
