Let me preface my answer to this question with one statement: You do you.
If color coding is satisfying and sustainable for you, go for it. Color coding (either of paper files or digital ones) can help you quickly identify what you’re looking for. But it comes with a drawback, in my estimation: extra work.
When I first started with genealogy back in 2001 or so, I created a color-coded paper file system. I bought colored folders and color-coded folder labels. I used one color per line (so four colors, one for each grandparent’s surname) and I created folders for each couple, with the folders for each surname and each line filed together.
I wasn’t a professional organizer yet, but I found the color coding satisfying.
That worked nicely before I ended up abandoning my research because I hadn’t sourced things properly. One of the reasons it worked out well is that I hadn’t yet done a lot of research so I didn’t have a lot of files. (That’s a picture of my file cart from back in the day above.)
When I came back to genealogy a decade later, I slowly transitioned from paper to digital files. And I didn’t bother using colored dots or any other type of electronic color-coding because I didn’t need to. Instead, I created a digital folder structure and a file-naming protocol that meant that I don’t have any trouble finding any of my digital files. I had to train myself to rename my files immediately after downloading them and to file them properly as soon as I processed them. That’s a solid habit now and easy as pie. Color coding would have been an additional, unnecessary step.
Once I started working as a professional organizer, I discouraged most clients from using color-coded files for fear that they wouldn’t have the right color handy when they needed to file. When that happened, they couldn’t file and piles would form.
In my view, if color coding impedes your ability to actually file, it’s not worth it. But if you love color coding and it works well for you, go for it.
If you’re interested in learning more about my folder structure and file system, check out my Orderly Roots Guide, How I Do It: A Professional Organizer’s Genealogy Workflow.