Freelance Finance

I have been reviewing how I organize and store financial records I accumulate in my twin roles as human being and freelancer. Both David Bach, author of the Finish Rich series and David Allen, author of Getting Things Done, promote systems for filing away paper in such a way that you can actually find it again. I started out studying their systems for ways I could improve mine—and then ended up keeping mine, after all.

These days more people are moving to archiving financial records in digital form, which is wonderful. The more bills we receive and pay online, the less material we’ll have on hand to file and store in our work and living spaces. But some banks, financial institutions and utilities persist in sending paper statements to our homes, and everyone, not just freelancers, are challenged to organize the stuff until such time as we no longer need it.

Bach suggests using 12 hanging folders, labeled with everything from “Taxes” and “Retirement” to Credit Card Debt” and “Insurance.” You’re supposed to stuff paper folders filled with the relevant bills and statements into each of the hanging folders. While it’s admirable to want to keep manila folders containing all your household bills in one hanging folder, I don’t find it practical. Hanging folders can’t hold that much material, and when paired with manila folders, it becomes difficult to read the mish-mash of labels. Many hanging folders are so flimsily constructed that they will tear from excess weight.

Allen says as much in his book, which has been touted by many as the Bible of productivity and organization. He recommends banning hanging folders from your personal filing system in favor of an all-manila folder system. He also suggests organizing your files according to a simple alphabetical system. I agree with him on both of these points. I assure you that the next time you want to find your most recent cable bill, your brain will not automatically think, “Household Bills—Cable,” but “Cable bill” or the name of the company instead. That’s how they should go in the file cabinet. File ‘em the way you think of ‘em at a moment’s notice: Water bill. Rent. Mortgage. And so on.

Mire and I manage our hard-copy financial records using 7 “zones”:

1. DESK DRAWER: The top left-hand drawer of my desk holds, in quite intentional order, a pile of loose paper receipts from recent transactions; unpaid current bills; and a poly expanding file measuring 5 inches by 10 ½ inches. The expanding file has 12 pockets labeled as follows:
Transportation
Publications
Meals
Entertainment
Office supplies
Postage
Trip expenses
Clothing
Medical
Gifts
House
Current article receipts [expenses incurred during the research of current articles]

Nearly every day, we download recent financial transactions into our Microsoft Money computer program. Mire calls out the transaction, I find the receipt, she checks it off, and I file it in the poly file. By the end of the calendar year, the poly file becomes fat, and come January 1 of each year I empty all the pockets into labeled paper envelopes for long-term storage. (More on this later.)

Once paid, input, and otherwise resolved in the Money program, paper statements or bills printed on larger sheets of paper are destined for the next zone:

2. FILE CABINET: This lovely two-drawer Hon file sits beside my desk. Inside are numerous manila files in alphabetical order. Ostensibly this cabinet holds only financial files relevant to the current calendar year; in practice there tends to be a little overlap. As soon as possible after the calendar year ends, I remove the relevant files and pack them in a box destined for the next zone:

3. BASEMENT FILE BOXES: These cardboard storage boxes can be found at any office supply store, and easily hold a year’s worth of manila files, as well as labeled envelopes containing old receipts. (I tie the receipt envelopes together with a piece of twine, since rubber bands invariably deteriorate over time.) Here the detritus of our financial lives sit until they can be reasonably dispatched, i.e., seven years in the case of tax records, three years for bank records.

Some manila files never make it to the basement because their contents are evergreen: receipts and warranties for big-ticket items such as appliances and computers, paper trails for investments that have not yet been sold, etc., win a reprieve from basement exile and eventual purge.

I have noticed with some delight that as digital statements increase, the number of paper files in the basement has decreased. With each passing tax cycle I look forward to a smaller and smaller pile of material, and more room for tools, hobbies, and sporting equipment in the basement.

The last three zones deserve mention:

4. SHREDDER: The occupant of this zone sits by my desk, ready to shred all sensitive material.

5. TRASH BIN: The greatest decluttering device known to man sits under my desk.

6. RECYCLING BIN: Don’t waste your shredder’s lifespan destroying paper that is not sensitive in some way. For all other paper, ditch it in a recycling bin. If your home office doesn’t have room for such a bin, stack all recyclables in a convenient place and walk them to the bin when you leave your office.

Some final comments:

GTD fans may be appalled that I am not collecting receipts and statements in a designated Inbox. My response to this—besides noting that David Allen does not aspire to be a tyrant—is that receipts are tiny and tend to get lost in my Inbox. Over time I have preferred to keep all financial statements separate from the Inbox. If you must collect all receipts in your Inbox to stick with the GTD program, be my guest.

Depending on the type of freelance business you have, you may need a far more sophisticated management system. At the very least, you may need TWO poly expanding files, one for personal receipts and one for business receipts. What I’ve detailed here has served this one-person business well for nearly twenty years. I’d love to hear how your organize yours!

Next up: How we organize our financial records electronically.