Does saying this four-letter word bring you satisfaction?

There are many ways to pay off your debt, but most people choose option one and let it ride.   Why? Because paying down debt is not an exciting use of your money.  We don’t want to deal with past financial decisions, we want to live in the moment and therefore we believe that we can only afford to make the minimum payments. This results in payments over your lifetime for things you don’t have, don’t use, and don’t even remember buying.    Choose another option.

There are several ways to approach your debt.   

Option One:    Snow job – (my made-up term!) make only the minimum payments each month and let it ride…with the pipe dream that one day you will be debt free.

Option Two:  Snowball – list your debts smallest to largest, make the minimum payment on all but throw every extra dollar you can find on the smallest debt.    When the smallest is paid off, take that full payment plus the extra and put it on the next smallest debt.

 Option Three:   Avalanche – list your debts by interest rate, largest to smallest.   Tackle the largest interest rate payments first.  Make the minimum payment on all debt, but throw every extra dollar you can find on the debt with the largest interest rate.    When the largest interest debt is paid off, take that full payment plus the extra and put it on the next largest interest debt.

Option Four:    Blizzard – a hybrid method of both the Snowball and Avalanche methods.    Start with the Snowball method and knock out some of your small debts, then shift to the Avalanche, to attack the higher debt options.  

Many financial guru’s choose the Snowball method because it helps you knock out some of the smaller debts and gives you momentum to keep going.   You see that you have fewer bills coming in and that you are making progress.     This is the go-to method and it works.   It is especially satisfying if you have a lot of small debts.   You see real progress, when you are able to find extra dollars and throw it all at the smallest debts to get them off your plate.    A side-hustle, selling on ebay/craigslist, refund checks, birthday money – any extra dollars you can find gets thrown at the debt.     

I recently read a new book, Money Hacks, by Lisa Rowan, that is a quick read of 275+ ways to decrease spending, increase savings, and make your money work for you.     Tip number 115 is to “Kickstart with a Blizzard”.     I love this concept of merging the Snowball and Avalanche methods.     Rowan suggests you start with the Snowball method to free up some cash to put towards other balances and then shift to the Avalanche and focus on your debt interest rates, paying down from highest to lowest.   She further says you can go back and forth between the methods as needed.   If you see one of your debts getting closer to zero, go back and hit it with the Snowball method and then switch back to the Avalanche.    

For example, utilizing the Blizzard method in the debt example below, start by using the Snowball option, making minimum payments on everything but the personal loan of $2,000.   On this payment instead of the $65, pay every dollar extra you can on this debt.    When it is paid off, switch to the Avalanche and throw all the money you were paying on the personal loan plus any extra you can find to the credit card balance with the 18% interest rate, while paying the minimum on everything else.   As this is paid off, go back and pay off the Student Loan 2 and then move on to the vehicle one loan balance.   Remember also that while you are attacking your debt, do not incur any additional debt.  Your goal is to be debt free.

Once your non-mortgage debt is paid off, you can decide if you want to speed up your mortgage by making extra payments.  My goal is to pay off my mortgage early and so I am making an extra payment of a few hundred dollars each month towards the monthly payment.   Even though my interest is low, I have a personal goal to pay off my mortgage and free up those dollars for other areas like travel, investing, retirement and college planning. 

I’ve never met anyone who gets satisfaction out of having debt. Choose one: the Snowball, Avalanche or Blizzard method, and get going on your plan.  Make a plan, follow through and then celebrate at the finish line. Whether it is one year or ten years, it will be worth it! 

Everyone else lives with this four-letter word, why shouldn’t you do the same?      

Do you ask yourself these questions: Isn’t this four-letter word going to follow me throughout my life?   Don’t you need this four-letter word to buy a house, to fund an education, to buy cars, to have nice things in life?    Everyone else lives with the four-letter word, why shouldn’t I do the same?    

In my last post, Can you imagine your life without this four-letter word, I shared a bit of my story with the four letter word, D-E-B-T.     I began by getting my credit card spending under control and moved on to other debt.    I said “no” to a lot of purchases but was able to find satisfaction in paying off my credit cards each month in full.   Surviving the first year with no credit card debt was an incredible feeling and gave me the incentive to continue with the same plan of paying off my credit card every month in full for the next 25 years.    

That first step of getting my credit cards under control, followed by attacking the rest of my debt, has allowed me to do many things.   

  • It allowed me to prioritize buying a top of the line, fully loaded car with a 2.9% interest rate and paying it off in 24 months.  
  • It allowed me to shift from a full-time career to a part-time career when we had children.
  • It has allowed me to travel extensively with my family taking numerous vacations each year including annual beach trips, cross country vacations and family trips to Europe every few years.  


What is your why to getting out of debt?   Identify and write down your why. Getting debt under control, is not easy or fun, but it is tremendously beneficial for your future. It becomes easier when you know your why and when you are on the same page with you spouse. Are you ready to get serious and make plan?    A realistic plan that you can live with, one that you can follow for as long as it takes.   In my last post, I asked you to gather all your information together.   Now I want you to write it all down and list out the information on a piece of paper or on a spreadsheet.       Look at the quick example below.

As you list your debts, list the actual payment amount if it is fixed, or the minimum payment if it changes each month (like a credit card).    On some of your statements, you will see the number of remaining payments.   Compute this in either months or years and add to this table.   You will see above I listed number of years remaining to pay.   If you are making extra payments, for now just list the minimum payments and the total time to pay off the debt.  If the remaining time to pay off is not noted, type in your computer search engine “How long will it take to pay off debt?”, or “Debt Repayment Calculator”.  There are plenty of sites out there that will let you key in the information and tell you how long it will take to pay off the charge, including bankrate.com, creditkarma.com, nerdwallet.com, and many banks have loan calculators on their websites.              

Do you realize that while making minimum payments,

it will take nearly 13 years to pay off an $8,000 credit card at 18% interest?  

…..and this assumes you stop using the card. 

For this week, just gather information and write it down and think about your why.  If you are married, share your spreadsheet with your spouse and together look at how many years you have remaining.    Next up we will discuss setting up a payment schedule to get rid of your four-letter word and how to do it in less time!      

Let’s get real about the impact this four letter word has on your life.   

From last month’s dreaded six letter word, to next up the &*#! four letter word…. D-E-B-T.   Let’s get real about the impact this four letter word has on your life.     First off, I want you to imagine all the things you could do if it was gone forever from your life?     Imagine the relief you would feel, the freedom and the possibilities.     What could you do without this four-letter word in your life?

Over 25 years ago, I imagined how my life would play out without this four-letter word.    I was single, in a good paying job and received a nice bonus at the end of each year.    I would use this bonus every year to pay off my most pressing debts: multiple credit cards.  Then come January, I would start charging them back up again.    You know how it is – dinner out, car repairs, a new outfit (or four), a vacation, gasoline, birthday gifts and on and on.  Come December, I would receive the bonus and pay them all off again.    

This circle continued for several years until one day I looked at the year-end bonus check and imagined how my life could look if I did not have to pay off the credit cards with the check.  I imagined taking a nice vacation, using it towards a new car, building up my savings or helping to fund a retirement account while simultaneously treating myself to something extra special.  I also imagined what would happen if I did not get this customary year-end check the following year.   Something finally clicked in this imagining time, and I decided that year was going to be the last year I would use my year-end bonus to pay off credit cards.   

A new plan was born and starting the year fresh, I made a commitment to myself to pay off the credit cards every month.   I imagined what it would be like to hold that year-end bonus check in my hand without having a single credit card balance come December.   I was determined to succeed.    I wish I could say it was easy, or that I considered not using credit cards at all, but it was not that simple.   I continued to use the cards and struggled to pay the monthly bills in full every month, often juggling and trying to time the purchases based on the due dates and my cash flow.  Some months I barely scrimped by, having only a few dollars in my pocket to make it through the week.   As the months went on, I was more cautious on what I charged and tried to buy less and pay cash more often.  I told myself anything under $20.00 had to be paid by cash (something I still try to do today).   Some months I found myself dipping into emergency savings to help pay off the monthly credit card bills.   It took a while, but I found my stride and eventually even consolidated down to using only one credit card for everything.   I said “no” to a lot of purchases but was able to find satisfaction in keeping my promise to pay off my credit cards each month throughout that first year.   You cannot even imagine the sweet feeling it was holding a bonus check that first December, knowing I owed zero on the credit cards!  It was an incredible feeling and gave me the incentive to continue with the same plan of paying off my credit card every month in full for the next 25 years.    

Debt comes in all shapes and sizes, and for most people is more widespread than credit cards.  Yet I shared this story as a pivot point in my relationship with debt.    I began by getting my credit card spending under control and moved on to other debt.     

Over the next four weeks, I plan to continue to post about the value of losing this four-letter word completely.  For now, gather up all your debt statements and list out all your debts, monthly payment due, full outstanding balance and the interest rate charged.  If you have followed along the organizing binder project this year, go back to your net worth statement as a starting point to see your list of debts and use this list of outstanding bills to pull your statements.    Up next week “Why should I live without the four-letter word?”

The Dreaded Six Letter Word

For many, creating a budget is high on their “not to do” list!    It is a reminder that you should be responsible, that you should live within your means, that you should be paying down debt, that you should be in a better place.  But what if instead you looked at it as a positive?   A way to build wealth, get your finances under control, improve your current situation, plan for your future, and get real about where your money is going every month.  

Creating a budget is a skill that many of us do over and over again throughout our life.    I think of budget planning like dieting… it is hard to start the process, but once you start seeing the benefits you want to keep going.   Like dieting, if you are too strict or too hard on yourself, you are going to give up quickly.    It’s best to start simply and to know that an occasional splurge is okay. Remember your goal in dieting is to be eating healthy rather than lifelong dieting.   Likewise, look to “spend less than you earn” and bank the difference for long-term financial health.  

In creating your budget, list your income at the top and then your expenses at the bottom.  Pull your pay stubs, year end statements, and look through your monthly bills and checking account to gather your estimated monthly amounts.    Below is a sample budget with several categories.   You may need to add or subtract some of your own.   Set this budget up on a spreadsheet and save it to your master finance file.  Or just write it out on a sheet of paper.   Place copy of the completed budget in your financial binder behind tab 2.

Categorize your budget as above and pay attention to what you can change.   If you have too many expenses, you can either bring in more income or cut out some expenses.   Both the total income and the total expenses amounts need to match.  In this example, the income is $4,700 each month and the expenses match at $4,700 per month.   Did it automatically work like that?  No, I adjusted the category amounts several times to make the expenses match the income.   You cannot allocate more money than you make.    I’ll write more about debt next month, but for now stretch yourself to make additional payments to pay off your debt.  The faster you pay off debt, the faster you can build wealth.  

If you do not have an emergency savings, take a look at this post and get started today.   If you already have $1,500 in your emergency savings, shift this money down to your monthly debt to pay off outstanding debt quicker.   

End your budget stress today by creating a different 6 letter focus word and begin to create your best financial F-U-T-U-R-E.

Do you Own it or do you Owe it?

A personal net worth statement is a snapshot of your financial health each year.  It is an overview of what you own and what you owe.  Begin by listing the current value of everything you own, then subtract the balances of items you owe to come up with your personal net worth.   Your goal is to have a positive net worth and to increase your net worth each year.    

Behind the Scenes:      

Each January, you should create a net worth statement which lists all your accounts and asset values and then subtracts everything you owe to come up with one net worth figure.  Why is this important?  It helps you to see how much you have grown from the previous year and tracks major accomplishments.  It also serves as a barometer to track your financial health and plans for the upcoming year.     

Your goal is to have a positive net worth and to increase your net worth each year  

Create this document in an excel sheet and save it in your 2021 finances file.  You can also print a copy to put behind your financial binder behind tab one for quick reference.   

Look at the example below.  The assets list everything owned and the value if you were to sell it or convert to cash.  If you are married, this is a joint statement include all your assets.  The liabilities look at the total remaining balances (not your monthly payment) of every item you have outstanding.  Use your year-end December financial statements to gather this information.   In the example below, the home is worth (could be sold for) $250,000, and the mortgage balance owed is $185,000. The difference helps your net worth because the home is valued higher than the amount you still owe.

Assets:  Liabilities: 
 (Value/Balance)(Amt Owed)
Home Value $       250,000Mortgage balance $     185,000
Vehicle One $         20,000Vehicle One loan balance $       15,000
Vehicle Two $         10,000Vehicle Two (paid off) $               –  
Checking Account $           2,500Credit card balances $         8,000
Savings Account $         15,000Student Loan 1 $       19,000
401K balance (you) $         40,000Student Loan 2 $         4,500
401K balance (spouse) $         30,000Personal Loan $         2,000
Roth IRA $           6,000
Investments $           1,000
Subtotal Assets $       374,500Subtotal Liabilities $     233,500
Net worth Jan 1 2021 $   141,000
(Assets less liabilities)

Some annual net worth increases may happen because your home value increases or you contribute to your 401K and the stock market had a great year, but it is also affected by choices you make during each year.   Decisions to pay off and keep a vehicle, to pay down debt and a plan to not take on additional borrowing.    Seeing this data in one place, gives you a snapshot of your financial position. It lets you see your big picture status all in one place and it will help you to make better choices and think about where you want to be in the next year.  If you have a negative net worth, what do you need to do to begin to build wealth?  If you have a positive net worth, congratulations and keep it growing this year!


Why you should Increase your 401K Contribution

Hello and Happy New Year 2021!!    I know it’s been a while since you’ve heard from me, like many others, last year was overwhelming in many ways.  Year 2020 was going to be the year I kicked off my blog, but instead became the year when many of us were working from home, isolating at home, quarantining at home all while being tied to a computer screen at home.   Quite honestly it has taken me a good number of months to strike a balance between home and work and to get back to the place where I am committing time to my blog.  So, for this brand-new year, I’m hitting the restart button and planning some great posts.   I am starting the year with this recycled Jump Rope Finance 401K tip:

If you are now contributing 3% to your 401K, go to 4% for the coming year.    The goal is to eventually reach 15% towards retirement savings.  If you have not signed up for your workplace 401K, do it today and try to start with at least 2%.   If you have a spouse, have them sign up too.    

Why this tip again?    Because it is something you can do today or tomorrow.   Over the last decade or so, more and more people have become what is called 401K millionaires.    They have socked money away in their retirement accounts and watched it explode thanks to the incredible stock market returns.   Imagine what your retirement years could look like with one million dollars!   Travel, time for hobbies, volunteer work, spending time with family and friends and most of all not having to worry about money.  

I know it seems like a long time away, and you may be asking yourself, why think about this now?   

  • Because on the flip side, most employers have done away with pensions or retirement accounts, so without a 401K your only other options are to continue working or rely on Social Security.   Do you want to be working at age 75 to cover your basic needs?   What about Social Security?    The average social security check is about $1,400 or well under $20,000 per year… for most that is not enough to live your best life. 
  • Because if you start small and increase every year, you won’t miss the extra dollars in your paycheck.
  • Because it feels good to plan for the future and know you have a plan. 
  • Because you don’t want to penny pinch when you retire or have to rely on your kids or family.
  • Because you want to retire early.
  • Because you have time on your side and money grows over long periods of time with steady contributions. 

Just start today… you will never regret putting away a few dollars now that will grow to a huge nest egg over your lifetime.     Next up, reread this post on creating a financial binder.  Grab a three-ring binder and start your financial binder.  Over the next few months, I am going to begin to walk down each of the tabs to create financials that go behind each section.  Next week’s post will be on creating your net worth statement.   This first step is a game changer as you plan your future!   So, read over the post, grab a binder, the free printable index page, and stay tuned for next week.  Until then, Happy New Year!   2021 already feels more promising!

Get Organized! Week Six

To Scan or Not to Scan?  

What documents should you scan for quick access?   Some important documents should be kept electronically on your computer and on an external hard drive for quick reference and for emergency access.  There are many documents you may not have electronically saved, that should be scanned into your electronic files.    

I love my financial binder for easy grab and go reference, and I keep many files electronically organized, but some documents should also be scanned and readily accessible for reference and emergencies.

Scanning is so easy to do today with many printers, scanners, your phone camera and scanning apps, and you might be tempted to scan all your documents and do away with a hard copy of data.   While this may be tempting, it is best to have a combination of both types of files (hard copies and electronic copies).    There are documents such as birth certificates and car titles that you must retain the physical paper.   Electronic clutter can also become a major headache, so scanning every receipt and every document would be overwhelming.  It’s also unnecessary because many receipts, documents and paperwork are never needed again.   

Three types of documents you should scan and save: 

  • A photo of everything in your lockbox (printable checklist)
  • Major purchases
  • Major household receipts and repairs

Your lockbox – contains your most important papers.   You may already have many of these documents electronically and can save them on your computer to either a file folder under your finances folder called “Important Docs” or place them in the appropriate file folder.   For example, you should have a copy of your most recent tax return in your lockbox.  Your scanned version could reside in the tax folder on your computer or the important docs folder.  

Major purchases – such as vehicles, musical instruments, real estate, etc. should be scanned and placed into the important docs file.   Keep a “major purchases” file folder inside the important docs folder for these type of receipts and name them with the item and the date purchased.   For example: “Honda Civic June 2019” or “Keyboard Oct 2011”.   This serves as two important pieces of information, item and when purchased, without even opening the receipt. 

Major household receipts and repairs – such as large appliances, interior and exterior repairs, and remodeling receipts.    For appliances, before you scan write the model and serial number on the receipt for quick reference if it is not already listed.    Having these types of files on your computer can provide multiple benefits.  If you need a repair, you can pull up the receipt and have the date of purchase, model, and serial number to report to the repairman without scrambling to find the numbers inside or behind your appliance.   We also recently saved a bundle by sending in a large remodeling receipt to our homeowner insurance company.   Because the file was already on our computer, it took just minutes to email and resulted in a savings of $700 per year on homeowner’s insurance.

Keep a copy of all these scanned documents on an external hard drive that you update once a year and store a copy off-site either in a bank safety deposit box, or with a trusted relative.    Although these are not original documents, they would help you quickly identify what documents you may need to duplicate or even to just grab policy numbers and phone numbers in a situation where you could not access original documents.  

I hope you have enjoyed this series on organizing your finances, for quick reference, link to posts you may have missed below. 

LINKS

Week One:      Gather your Financial Papers

Week Two:      Create a Financial Binder

Week Three:  Organize your Files Electronically

Week Four:     Processing your Bills and Paperwork

Week Five:      Create a lockbox of important documents

Week Six:        To Scan or not to Scan?         

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Get Organized! Week Five

What’s in your Lockbox?

 Although I love my financial binder for a quick file reference, and I keep many files electronically, there are some documents that you should keep physically secure. Items such as birth certificates, social security cards, passports, wills, insurance information and your back-up hard drive should be securely tucked away in a locked, fireproof box.  

Some people keep these items in a bank security box, but there are disadvantages to having your papers offsite. One reason is accessibly. When I need my birth certificate, I don’t want to wait for the bank to open, and to have to take off work to go to my security box during banking hours.   I want to be able to grab documents when I need them.  

If you are considering keeping your documents onsite, three types of inexpensive lockboxes under $100 are below. The photos are boxes that I have at my home, but I’ve linked to a few similar items:  

Fire resistant cash box:  a simple but durable metal container with a lock.   Until very recently, my family used this type of box.   It’s small, but simple and can be tucked away in a drawer or cabinet.    Mine lost its handle along the way, but still works fine!

Small fireproof/waterproof lock box:  a sturdy fireproof and waterproof box.   Again, small and simple but a little more substantial.  For both this option and the cash box, you do need to fold most papers to fit in the box, but I’ve never had trouble doing this, and most documents are already folded when received.  

Medium size, fireproof/waterproof file lockbox box:   Fireproof and waterproof file box that accommodates letter-size hanging files and folders for easy storage.     I purchased one of these for about $60.00 at a local store and have been pleased with this hanging file format.  

In all three cases, these boxes are not safes to keep your millions, someone could pick up and take the lockbox or break the lock.   However, it is a safe place to store documents and keep them all in one central location, safe from fire and in some cases from water damage such as flooding.   

Once you choose your lockbox type, next gather and organize your documents.   I’ve created a listing of suggested items for your lockbox. Personalize it to fit your needs and what is irreplaceable to you if lost or just something you might need to get your hands on quickly.  For example, your spare set of car keys, a flashdrive of your wedding/baby photos, or a small family heirloom.   If you choose one of the smaller boxes, rubber band like items together, and use a notecard or to identify place on top before placing in the lockbox.   You can also use an envelope to group small items such as social security cards.

If you choose the medium size, file lockbox, you can organize with hanging folders and file folders, labeling each one.  

Think about your most important papers, are they all in one place and secured? If not, it’s time to create a lockbox for your home.

Up next week #6: To scan or not to scan.

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Get Organized! Week Four

It’s Time to Get Organized!   We get what seems like a million pieces of paper each year.   It’s easy to get overwhelmed by the piles of paperwork on the counter.    And if one of those pieces is a bill or a tax document, sometimes its out of sight, out of mind.  It can be easy to accidentally miss the due date.    

This post is week four out of six of sharing financial organizing tips.   Continue reading to see my method to process bills and paperwork.  Although I have automated many of my bills, such as mortgage payment, electric and gas bills, insurance premiums and giving to my church,  there are some bills that I still want to see every month like credit card bills and loan statements.   This is a photo of my family room bookshelf.   You should know; it was much messier before I took the picture!

Do you see the black and white box in the middle near the top?  It’s actually a file box where I store my incoming bills and important paperwork.    When I get bills in the mail, or anything that requires a check (a school form, a tax bill, a registration) and I don’t have time to deal with it, it goes in the box.   When I am ready to sit down and pay a bill or fill out the form, I grab the whole box and take it to my kitchen counter. 

The box is a Thirty-One Fold N’ File box that I bought at a resale shop. If you want a fold n’ file box like this one, reach out to a thirty-one consultant or check out ebay or Mercari where they sell for about $15 to $25 and come in a variety of patterns.   The box size is approximately 12 X 10 X 7.  Alternately, you can use pretty rattan basket, or seagrass basket or this gray foldable basket.  I also like Marshalls or Target for organizing supplies.    

I just toss the bills in the box when received.   You could create file folders too, but I found that it is just easier to toss them in and be done with it.  The box is simply a temporary holding place for items I need to deal with, to write a check, or complete a form or registration.  It is not a long-term storage file.   I look through it once or twice a month.   

One side of the box is flat and the other has two mesh pockets on the outside.In the pockets I keep blank envelopes, stamps, address labels and a few pens. You could also keep your checkbook here if you still write checks.    When I put this on the shelf in my living room, I turn this side towards the wall.   If you have a box without the outside pockets, just rubber band the supplies together and toss inside the box with your bills.  Or use a plastic pencil case and toss on top.  Target has these pencil boxes for about a dollar each.

Although I have automated most of my bills, there are some that I receive monthly because I want to keep track and review them.   I have found that if I receive them online, I don’t always look at them with close scrutiny.    While online might be fine for the monthly electric bill that doesn’t change much, I do want to see the Target bill and the VISA statement to review my purchases every month.     My mortgage payment is made automatically, but I also receive a paper copy in the mail because I like to keep an eye on the outstanding balance.   One day we will own our house free and clear!  

Once my bills are paid, I toss them into a white Ikea box, in a nearby closet that I’ve turned into a mini office (a future post!). 

At one time, I filed everything in file folders by vendor (Phone Company, Electric, Gas, Cable) but that took much time.   Next, I tried file folders by month and lumped all together (Jan 2020, Feb 2020 etc.), but I found I rarely went back through them and file folders were jammed in file cabinets.   Now I just rubber-band each month’s paid bills together and write the month and year on the top bill with a sharpie, open the box and toss them in.  It’s kind of organized in that the last month’s items are always near the top.  Since so much is paid automatically, I really don’t have a lot of bills in this box and it usually lasts one or two years before it is full.   If I need to reference a paid bill, I pull down the box and shuffle through the rubber banded groups to find the monthly batch.   Simple and works for me!   

Much like life, things are always changing and what works today, may not work down the road.    So, if you try something and it’s not working, find another method.   

Disclosure:  If you purchase anything from links in this post or any other Jump Rope Finances blog post, I may receive an affiliate commission.  However, I only mention products I love and would recommend whether I was being compensated or not.   Thank you so much for your support of Jump Rope Finances. 

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Get Organized! Week Three

It’s Time to Get Organized! Keep copies of financial documents and spreadsheets electronically organized on your computer for quick reference.  In less than an hour you can set up an organized electronic filing system with this quick guide. 

Although I love my financial binder for a quick file reference, I keep many files electronically.    On my computer, I have a main master file folder called FINANCES where I have about 12 to 15 subfolders that help organize my financial documents.   Every file that is financially oriented goes into one of the subfolders in the master FINANCE folder.   Below is a quick snapshot of my FINANCE folder with all the subfolders.     

STEP 1:  Create a master folder called FINANCES  

STEP 2:  Create subfolders under the FINANCES folder to store your documents  

STEP 3:  Move all your financial documents into the appropriate subfolders 

Note there are no actual documents in the FINANCES folder – keep everything in a file subfolder within the FINANCES master folder to keep the master folder clean and organized.   In making subfolders, you won’t get overwhelmed trying to find files or trying to remember what the document contains without opening each document.  

Some examples of items to keep in the subfolders are loan agreements, payment records, monthly or quarterly reports, amortization schedules, maintenance records, purchase records, tax files, etc.   In some folders, you can have additional file subfolders.   For example, in TAX FILES, there are individual folders for each year.     

In the subfolder labeled 2020 store anything that is relevant only to year 2020.  For example:  monthly bills that are paid electronically, credit card statements, net worth statements, an electronic check register for the year.   These are files you may not need to reference on a regular basis beyond year 2020.     

On the other hand, if you need to access certain files in the future, such as a home improvement schedule or receipt,  you don’t want to be spending time trying to remember which year you purchased or repaired something, so instead put this type of data in the HOME file folder.   Within the HOME file, you can have subfolders where you keep information about your mortgage loan, property valuation, interior repairs, exterior repairs, and a master contact listing.    For example, we had our roof replaced a few years ago, and keep the related information in a spreadsheet that I can pull up quickly along with the details such as roofer contact name and address, date of replacement, amount paid, warranty information, model, color and shingle type, etc.  This spreadsheet is kept in the EXTERIOR folder under the HOME folder.    Under the INSURANCE file, you might have subfolders for types of insurance and related information such as policy and contact information stored.  

Create organized electronic folders which are applicable to your life.   Some other subfolder examples might be Child Care, Scholarships, Social Security, Student Loans, Vacations.    For quick access, keep copies of bank statements, financial worth, credit statements, mortgage and car loan information, check register, monthly bills and other self-created spreadsheets electronically organized folders.   What about documents that you don’t have electronically, should you consider scanning them into your files?     I’ll talk more about this in week 5’s post on Paper files or Scanned files? 

Up next week #4: Keeping track of bills and creating a file system for paid bills.

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