Keeping your financial records organized is an important part of managing your personal finances. Whether it’s a paid personal property tax receipt or a W-2 to correct a conflict with Social Security records, there may be times when you need to locate a financial record or document–and you’ll need to locate it quickly.
By taking the time to declutter and organize your financial records, you’ll be able to find what you need when you need it.
What financial documents should you keep?
If you tend to keep stuff because you “might need it someday,” your desk or home office is probably overflowing with nonessential documents. One of the first steps in determining what records to keep is to ask yourself, “Why do I need to keep this?”
Documents you should keep are likely to be those that are difficult to obtain, such as:
- Tax returns
- Legal contracts
- Insurance claims
- Proof of identity
On the other hand, if you have documents and records that are easily duplicated elsewhere, such as online phone bills and credit-card statements, you probably do not need to keep paper copies of the same information.
How long should you keep your financial records?
Generally, a good rule of thumb is to keep financial records and documents only as long as necessary. For example, you may want to keep ATM and credit-card receipts only temporarily, until you’ve reconciled them with your bank and/or credit-card statement. On the other hand, if a document is legal in nature and/or difficult to replace, you’ll want to keep it for a longer period or even indefinitely.
Some financial records may have more specific timetables. For example, the IRS generally recommends that taxpayers keep federal tax returns and supporting documents for a minimum of three years up to seven years after the date of filing. Certain circumstances may even warrant keeping your tax records indefinitely.
Keep in mind that if you purchased an investment in a taxable account, you will need to have proof of what you paid for that investment, including reinvested capital gains and dividends. The investment companies are required to supply that information for purchases as of January 2012 and after. Before that date they may or may not have it. Do not throw away old investment statements and confirmations of trades before that date for taxable accounts.
Listed below are some recommendations on how long to keep specific documents:
Records to keep for one year or less:
- Bank or credit union statements (that do not contain information used for tax returns)
- Credit-card statements (that do not contain information used for tax returns)
- Utility bills
Records to keep for more than a year:
- Tax returns and supporting documentation
- Mortgage contracts
- Property appraisals
- Annual retirement and investment statements
- Receipts for major purchases and home improvements
Records to keep indefinitely:
- Birth, death, and marriage certificates
- Adoption records
- Citizenship and military discharge papers
- Social Security card
Keep in mind that the above recommendations are general guidelines, and your personal circumstances may warrant keeping these documents for shorter or longer periods of time.
Out with the old, in with the new
An easy way to prevent paperwork from piling up is to remember the phrase “out with the old, in with the new.” For example, when you receive this year’s auto insurance policy, discard the one from last year. In addition, review your files at least once a year to keep your filing system on the right track.
Finally, when you are ready to get rid of certain records and documents, don’t just throw them in the garbage. To protect sensitive information, you should invest in a good quality cross cut shredder to destroy your documents, especially if they contain Social Security numbers, account numbers, or other personal information.
Additionally, you should verify information in your documents, for example pull your credit report and verify that the information contained in it is correct compared to your other documents such as credit card statements. When you look at your Social Security Benefit Statement annually, verify that the earnings history is correct versus your W-2 information.
Where should you keep your financial records?
You could go the traditional route and use a simple set of labeled folders in a file drawer. More important documents should be kept in a fire-resistant file cabinet, safe, or safe-deposit box.
If space is tight and you need to reduce clutter, you might consider electronic storage for some of your financial records. You can save copies of online documents or scan documents and convert them to electronic form. You’ll want to keep backup copies on a portable storage device or hard drive and make sure that your computer files are secure.
You could also use a cloud storage service that encrypts your uploaded information and stores it remotely. If you use cloud storage, make sure to use a reliable company that has a good reputation and offers automatic backup and technical support.
Once you’ve found a place to keep your records, it may be helpful to organize and store them according to specific categories (e.g., banking, insurance, proof of identity), which will make it even easier to access what you might need.
Please note that if you have elected electronic statements with your investment firms, they send you an email notice that your statement has been created and the electronic version is ready for download. They are expecting you to pull up your statement and print it or save an electronic version. Brokerage firms will make an electronic version available to you for a certain period of time ranging from a few years to ten years depending on the firm. After that period they will not have the statement for you. Keep in mind that for taxable investments they were not required to keep track of cost basis information before 2012, although some did.
Tax Preparation Documents
Consider creating a central location to collect the documents, such as 1099s and W-2, needed to prepare your tax return so that as they arrive at the beginning of the year you have one place to collect them, making the task of tax preparation easier. This location can be used throughout the year to collect copies of receipts for donations and major home improvements.
Consider creating a personal document locator
Another option for organizing your financial records is to create a personal document locator, which is simply a detailed list of where you have stored your financial records. This list can be helpful whenever you are trying to locate a specific document and can also assist your loved ones in locating your financial records in the event of an emergency. Typically, a personal document locator, kept in a very secure location, will include the following information:
- Personal information
- Personal contacts (e.g., attorney, tax preparer, financial advisor)
- Online accounts with username and passwords
- List of specific locations of important documents (e.g., home, office, safe)
Keeping your financial records organized will reap long term rewards in time saved and peace of mind for years to come.
Portions of this blog post are from an article prepared by Broadridge Investor Communications Solutions, Inc. Copyright 2017 But, I just had to add my own two cents!