Creating Order from Chaos

Question of the week:I'm constantly overwhelmed by the amount of financial paperwork there is to deal with. Any suggestions for a system for keeping everything organized? --W.N.W.

Dear W.N.W.,

When we posed your question to members of the Armchair Millionaire community, we found that nearly everyone fell into one of two groups: Those who are wedded to their filing cabinets, and those who are proponents of personal finance software. Here are two examples of the comments we received:

Go with paper. "I keep a file with folders sub-categorized for 'retirement,' 'monthly bills,' 'bank statements' and 'taxes.' It's nice, neat and ready for a quick review." --Wade

Go with software. "Using personal financial software is a must. It's the best way to control where your money is spent, to set up and control a budget, and to see your cash flows. This makes your whole financial life more fun." --Doug

But as important as it is to have a system for organizing all your paperwork-whether you do it with file folders or software-it's only the start. You need to get at the root of the problem by taking steps that will simplify and streamline your finances. My checklist has some suggestions.

The Armchair Millionaire Checklist for Simplifying Your Financial Life

• Consolidate. If you have accounts with six different investment companies (you'd be surprised at how many people do), consider consolidating with one fund family, or at least consolidating into one account with a discount brokerage company. You'll cut down on paperwork, and probably save on fees, too.

• Automate. Stamps are going the way of the dinosaurs for good reason. Nowadays, nearly any financial transaction you make on a regular basis-whether it's an investment (such as monthly deposit into your IRA), a loan payment (such as your mortgage), or a bill (such as your utilities or insurance payments)-can be automated. Take advantage of it in order to reduce the sheer volume of paperwork you handle.

• Reduce redundancy. You gain little (except a paperwork headache) from having multiple investments with similar objectives and holdings. For example, two different large company growth mutual funds will largely overlap in what they own, and deliver largely the same results.

• Go paperless. Most brokerage and fund companies will be happy to send you their account statements, prospectuses and reports via email. It saves them money, and saves you filing hassles.

• Only keep what you really need. Do you really need that electric bill from four years ago? Or that annual report from three years ago? Probably not. Don't automatically keep everything that arrives in your mailbox-decide what you really need to keep for the long-term, organize it, and toss the rest.

THE BOTTOM LINE: It's impossible to get a handle on your finances if you're swimming in paper. By simplifying your overall approach, you'll reduce your paperwork load and free yourself up to focus on your big financial picture.