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I (and many others on this forum, I think) use folders as "areas of responsibility" (e.g., "homeowner," "husband/father," "teacher," etc.) which works well for my purposes. I've also seen people use two big folders for "work" and "home."
As I see it, the main functionality that folders do (besides just giving some visual order to your projects list) is facilitating focusing - so you may want to think about in what scenarios you anticipate focusing on groups of projects, and place in folders accordingly.