Even the most disorganized person can write out a list of his assets and liabilities. This is actually what we do regularly when we apply for a mortgage or car loan or update a credit card application.  If it’s so simple, why haven’t more of us done it?  It’s always much easier to deal with our finances when someone else is analyzing the numbers and when there is a deadline; we have an immediate incentive to pull the information together.  Or we may avoid doing this exercise because we do not want to start thinking in materialistic terms; sitting down and listing our assets may seem a little greedy.

Sometimes it is painful for us to look at the numbers on the balance sheet because they may not jive with the numbers it would take to maintain the image the world has of us. In the late 1980s, it was not uncommon for people who had heavily invested in commercial real estate to have negative net worths, accompanied by little or no cash flow.  They were being hit on all sides: their tenants were going out of business, so rents were not coming in; mortgage payments still needed to be made; and there were very few commercial real estate buyers to take property off their hands at any price.  To the outside world, these people may have seemed as wealthy as ever, but in reality they may have had virtually no income and were headed towards financial disaster.  By filling out a net worth statement for a personal line of credit, a person in this situation might realize for the first time the necessity of making financial changes.

So if, despite hesitations, you know your financial net worth is key, what is the first step? Getting organized, or improving the system you already have if need be.  Some people think that I am organized by nature, but nothing could be further from the truth.  Early in my adult life, after looking for a bank statement for entire day and still not finding it, I realized that I hated looking for something more than I disliked getting my records organized, so I vowed I would never have to carry out such an extensive search again.

If you’re like most people, you’re probably more organized in your work life than your personal life. Why?  In your work, you are usually answering to somebody else. The personal financing test of adequate organization in your personal finances is to ask yourself this question: “can I get my hands on any major piece of paper referring to my financial situation in 10 minutes?” If the answer is yes, congratulations.  If not, you need to improve your organization system.  First ask yourself what one major reason is keeping you from being organized.  More often than not, the culprit is a poor filing system or the habit of letting papers pile up with the idea that you will file them on the weekend instead of filing as you go.

If you are not satisfied with your current system, here’s a simple one that takes only one hour to setup.  First, you need a small filing cabinet, or a large filing box if you don’t have to make files.  You also need folders for the categories created with your folders.  You’ll need one file for each of your bank or investment accounts; one for each of your retirement plans; and one for each piece of real estate, each automobile, and each credit card you have. For taxes, it is also smart to set up a current year income tax file with envelopes for different types of income, deductions, and taxes. Keep this year’s income tax file handy so that you can just throw receipts and papers pertaining to your taxes as you collect them in the appropriate envelopes and worry about them at the end of the year. I also have one file for current bills to be paid, 12 monthly files for miscellaneous bills were paid during the last year, a general to do file in the pending file.  To keep track of warranty cards, instructions, purchase receipts, etc., I have one file for each category of household items; kitchen items, major appliances, audio/video/TV equipment, sports gear, lawn and garden stuff, baths, and so on.  A file that contains multiple papers for recording all household capital improvements is of course by a receipts is a very useful way keep track of all of the expenditures you make that might be used to offset any capital gain you incur when you sell your house.  Finally, I keep one file for insurance balls is another for employee benefits.

You may wonder why I am not including monthly files here for statements received.  Instead, you separate files for each credit card, bank account, etc.., because credit cards and bank accounts rarely and on the last day of the month.  This may sound like an unusual problem, but I cannot tell you how many times clients have told me the same thing.

One of the best pieces of advice I ever received was a suggestion to create a file every year for each person in my household.  These files provided using place to collect greeting cards, important letters, newspaper clippings, photos, artwork, report cards, old man does, etc.  Even now that my children are in their teens, one of the activities the most enjoyed doing from time to time is pulling out these old files and seeing the “time capsule”for each of the years of their lives.

20/MD

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