Sort Those Piles of Financial Paperwork Once and for All

The confetti has been vacuumed and the empty champagne bottles are in the recycling bin. You can't put it off any longer: It's time to tackle the year's financial paperwork detritus once and for all. (Yup, I know all about the stacks you shoved into the kitchen cabinets right before the party guests arrived last week.)

To control the pileup of receipts, bank records, warranties, and whatnots, take a cue from the decluttering books in the organization aisle at the bookstore. Browsing the titles, it becomes clear that there are a lot of approaches to taming the torrent of everyday items that stack up at an alarming rate. The advice can be easily tailored to help people corral financial clutter. In order to illustrate this, let's use the five steps author Julie Morgenstern outlines in her popular organization book, Organizing From the Inside Out.

Step 1: Sort

Take stock of your financial filing cabinet. For a super-fast sort, set a timer for 15 minutes and make three piles -- paperwork relating to what you own (your house, car, snazzy electronics), what you owe (credit cards, student loans, mortgage, monthly bills), and what you save (banking accounts, retirement savings, gold doubloons).

Extra credit if you set up a tracking system -- using an oldfangled pencil and paper, a more newfangled system, such as Intuit's Quicken or Microsoft's Money, or whatever system you'll actually refer to in the future.

Step 2: Purge

Get rid of extraneous stuff. This means everything from 10-year-old phone bills (the ones you don't need to show an IRS examiner, that is) to redundant accounts and services.

Nothing cuts down clutter more than getting fewer account statements each month (even if they're digital, you still have to deal with them). For example, consider consolidating your old 401(k)s into a single self-directed IRA. If you're married, assess the costs and convenience of any separate accounts you have. Insure your cars on one policy and see whether you get a price break on homeowners or renters insurance with the same firm.

Taking the time to simplify your financial life now will score you hours and hours of free time to waste in front of the TV in the future.

Step 3: Assign a home

In household organization, things you use frequently are stored at the front of the closet. Stuff you use less often goes in the attic (or mysteriously disappears while you're out shopping and reappears later at a neighbor's garage sale).

The same organizational principle applies to your money. Short-term financial obligations -- monthly bills, savings for a vacation or a new pool -- should sit in the forefront of your mind and filing cabinet. Paperwork relating to accounts accessed less frequently -- your emergency savings account, retirement savings, kids' college fund -- can be filed in the second drawer, as can things like warranties and receipts for large purchases. Put the most recent statements in the front of the folder and put a tab on any folder that contains items you'll need to access to do your taxes.

Step 4: Containerize

Now that you've gotten rid of extraneous accounts (Step 2: Purge) and assessed what needs regular attention (Step 3: Assign a home), it's time to find the best place to "store" money you don't need to get to frequently.

The goal for your long-term savings is to make it grow. If you've got five years or longer (depending on your risk tolerance), there's no better place for growth than the stock market. Let your employer lend a hand. Your work retirement plan (401(k), 403(b)) is the perfect place to start, particularly if your boss offers to match any portion of your contribution. An IRA is another vessel for long-term savings tasks, and all you need to get started is a discount brokerage account. Give your future self a raise starting today by maxing out both of these important accounts.

Your short-term savings -- what you plan to spend within about five years on a new roof, new car, or a major vacation -- should be put in a money market account, CD, or even short-term bonds. Your peace-of-mind money -- for medical emergencies, car-repair emergencies, pink-slip emergencies -- should be easily accessible (but not too easily accessible). For this purpose, consider a high-yield savings account (often a money market account) with check-writing privileges.

Step 5: Equalize

Once you have tamed the paper beast and achieved a chipper state of financial being, work a little every day to maintain your new centered status. You can simplify your system through automation. Online banking/bill pay allows you to automate your monthly money management. (This isn't an excuse to stop reviewing bills, though, unless you enjoy nasty surprises like new fees, changed due dates, and negative opt-out services added to your tab.) Your payroll department makes regular retirement savings a snap by automating your contributions from every paycheck. You set up the same system for yourself by designating monthly amounts to be ported into your IRA and other savings accounts.

Finally, when the bills, bank statements, receipts, and garage sale proceeds come in, review Steps 1 to 4 and then lather, rinse, and repeat.

Despite the piles on her desk, Motley Fool consumer finance expert Dayana Yochim insists she has a "system" for handling paperwork. At GreenLight.Fool.com the money solutions are expertly organized by life stage (singles, couples, families, and empty-nesters), topic (credit/debt, retirement, investing, big purchases) and labeled clearly in Tupperware bins.