When prospective clients and I decide to work together, I give them a homework assignment. The basis of a comprehensive financial plan includes a thorough review of their net worth, cash flow, insurance, investments, taxes and estate documents, so I ask them to provide this information to me.

I can immediately tell who is organized by the expression on their faces. Sometimes I hear, “no problem, I can pull that information together for you over the weekend.” Many times I see a look of panic, followed by, “I don’t know where to begin.”

I meet people wherever they are, and we eventually collect the information I need to complete their comprehensive plan. I observe that clients who are able to respond to my request quickly are almost always also in better financial condition to start with compared to clients who are not organized.

It’s easier to make good financial decisions if you have a complete view of your financial situation and the “facts” of your situation are at hand. My clients who are organized also spend less on their tax preparation fees than those who are not.

Develop a System That Works for You

Do you have a process for handling daily, weekly, monthly, quarterly, semi-annual and annual money “to-do’s?”

Examples of daily “to-do’s” might be as simple as designating a “drop-off” receptacle to develop the habit of emptying your pockets of receipts into it every night, as well as money-related mail that arrived that day.

Then, set aside a regular time each week to “do the money” by working through the items that accumulated in that receptacle.

Some weeks will involve only sorting and filing. Add a bill-paying task to every other week. Review brokerage statements monthly, and file them as you go. Add an insurance review when premiums are due.

Prepare for annual income tax filings during this time as well. If you keep up with your weekly filing, tax preparation and financial planning will be a breeze! You will save time and money in the long run. If you need more than that knowledge to keep you in the habit, have a treat waiting for you upon completion of your tasks.

I love office supplies and office supply stores, so I find that an easy motivation for me to stay organized is to have all the proper — and fun — tools such as pretty containers, decorative folders and a label maker. You can get creative here by incorporating antiques or craft projects without losing the point of your organizing endeavors.

What to Keep: Some General Guidelines

Every weekly money meeting should involve a filing task. Here is a way to organize financial information that works for me:

I like to create an annual file for each year using a pressboard classification folder. The six-section version meets my needs. Each section provides a fastener that requires a two-hole punch so my papers stay in order and can be transported without risk of loss — unlike a file folder system. Here are my categories:

• Income and expense records (like Quicken reports, paystubs and receipts)
• Bank statements (including deposit and payment records)
• Investment statements
• Employer benefit elections
• Federal and State tax returns

I also create a permanent file for assets and contracts:

• Asset files (including residence, rental property, collectibles, brokerage accounts) to hold all documents that support the asset’s basis (see “Know Your Basis” in the July 2011 newsletter)
• Property and casualty insurance
• Life and disability insurance
• Estate planning documents (including birth, marriage and divorce certificates, Social Security statements)

I use one classification folder per year for my personal finances. I have six permanent files at the moment. It really isn’t that much paper when you see it in one organized place. I can grab it and dash if I should ever need to.

Many filing systems fail when the designated file location gets full and people give up.

Archive annual folders more than three to five years old. Permanent files for assets no longer owned or expired contracts can be moved into storage boxes and kept securely, but at a distance in an archive location, say a closet or remote site. When that site fills up, consider removing tax returns from the oldest annual files and the oldest permanent files.

Another advantage of the classification folders is that they fit nicely into Bankers Box storage boxes for archival files.

Where to Keep It

An inherent trade-off exists between access and security. I’ll have more to say about security in an upcoming newsletter. For now, I would like to mention the topic that gets less attention, access.

In case of disaster, you need to know what financial records should be transported (bills, annual file, permanent file) and you need to know that they’re ready to go.

To prepare for your potential incapacitation, choose a trusted individual who is sufficiently knowledgeable about your finances and give him or her access to your financial records — both physically and legally. Also provide access and funds to continue payment of items such as insurance premiums, etc.