Ready to Get Organized? Start Here.
If you needed to quickly get your hands on a copy of your homeowners insurance, your Social Security card, and your birth certificate, could you do it? If the answer is no, it may be time to give your filing system a deep clean. Many of us have filing cabinets that are stuffed to bursting. Tackling this project along with your other spring-cleaning items can help make sure that no matter what life throws at you, you can find what you need without a hassle.
Besides being able to find what you need when you need it, decluttering your paperwork gives you a chance to review your spending habits and your long-term financial goals. It can also make check-in meetings with your financial professional quite a bit easier (and avoids the embarrassment of showing up with a shoebox full of receipts).
Before we move on, you should know this article is for general guidance and informational purposes only and isn’t a replacement for real-life advice. Make sure you check in with a tax, accounting, or legal professional before modifying your financial document strategy.
Overhaul Your Filing Cabinet
We’ve all been guilty of tossing things like appliance manuals and old restaurant bills into the first drawer we have handy. Start by opening those drawers, pulling out all your file folders, and systematically sorting through every single one. If this is overwhelming, just start with one folder at a time. Have a “keep” pile that you’ll file, and a “toss” pile (we’ll talk about shredding in a minute). For the items you’re keeping, make sure each folder is clearly labeled and that the paperwork inside matches the category of the folder. Cleaning up your filing cabinet doesn’t have to be boring. Get some fun-colored folders and markers to keep yourself organized. If you’re really ambitious (or your handwriting isn’t the best), use a label maker to keep everything easy to read. While everyone has their own system, sorting your files alphabetically is classic and can make them easier to search in a hurry.
You can make your bookkeeping system even leaner (and greener) by switching to digital documents and using a scanner to preserve printed copies. Just make sure you have digital back-ups on both a cloud system and a physical hard drive. Many investment firms, banks, and credit card companies will gladly swap you from paper statements to electronic ones you can access online. 1
Annual Document Cleanup
If you prefer paper documents, there are quite a few that you can probably get rid of on an annual basis. These include bank statements, credit card statements, old medical bills, utility bills, and statements for services you no longer use. However, to protect any sensitive information, you may not want to simply throw them in the garbage. Consider investing in a paper shredder or take them to a local business that offers paper shredding services.
One important note: If you need an item for your tax return, or it’s still being resolved, hold on to it. If you’re not sure, it’s better to be on the safe side, so tuck it into a folder.1
How long should I keep it?
One of the biggest concerns everyone has is how long you should keep your paperwork. This depends on the action, expense, or event that the document records. From a tax record keeping perspective, you should hang on to records that show an item of income, deduction, or credit on your tax return until the period of limitations for that tax return runs out. When in doubt, ask your financial, tax, or legal professional to confirm whether or not your records are ready for the shredder. If you own a business, you may need to keep some records for even longer.2
Keep for 3 Years
- Tax returns and all accompanying W-2s and receipts. The IRS recommends that you keep records for “three years from the date you filed your original return, or two years from the date you paid the tax, whichever is later.” State laws vary, so make sure you check with your tax professional before tossing out any old returns. When in doubt, it never hurts to hold on to tax-related records.
- Credit card statements that include purchases made as part of a deduction
- Utility bills being claimed as a tax deduction
- Investment records
- Real estate records3
Keep for 7-10 Years
- Proof of student loan payoffs
- Home improvement records and receipts. It’s important to keep all records and receipts for home improvement projects, especially if you’re planning on selling your home. These receipts will be needed for both real estate and tax purposes.
- Active contracts
- Current property records
- Documents for current insurance policies
- Stock certificates3
Some things you really should keep forever. This includes important documents that could be difficult or impossible to replace. Rather than keeping them in a folder with the rest of your paperwork, consider storing these in a safety deposit box or in a fireproof, waterproof box or safe in your home. Should the unthinkable happen, the last thing you want to worry about is preserving your important documents. Here are some to make sure you keep safe and sound:
- Marriage licenses
- Birth certificates
- Adoption papers
- Death certificates
- Records of paid mortgages
- Divorce paperwork
- Wills and living wills
- Powers of attorney
- Legal filings
- Military records
- Retirement and pension plans
- Inheritance documents
- Beneficiary forms3
It’s the Right Thing to Do
If it’s been a while, spending time organizing your financial paperwork might feel like choosing broccoli over pizza. But getting everything in order is good for your mental and financial health. Knowing that your important documents are protected, and being able to find whatever you need, whenever you might need it, will make the whole effort worthwhile. Your future self will thank you.
- IRS.gov, October 14, 2020
- IRS.gov, September 29, 2020
- Forbes.com, July 14, 2020
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.