Having an organized system for handling your important financial papers will make your life simpler and give you a sense of control. From W-2s and account statements to tax documents and insurance policy renewals, all paperwork that includes personal information should be organized and stored properly in a secure location.
Handling financial mail – both physical and electronic mail
- When you receive mail, look at it immediately, especially bills.
- If you see something on a bill, such as a credit card statement, that looks unusual, follow up immediately.
- Then sort your mail into four categories – bills that need to be paid, reading material, records that need to be kept and everything else that can be shredded.
- For electronic mail related to your finances, create folders that match and move them into the folder once they’ve been paid.
Keeping your records
Over time, you will find you can accumulate paper. There will be tax related papers, monthly statements and bills, investment records, insurance policies and other important “permanent” records you feel that you should keep. Here are some guidelines to consider.
Tax records deserve special attention
The general rule is the IRS has three years from the due date of your tax return to start an audit. This is often referred to as the three-year statute of limitations.
- Therefore, you need to keep records that support anything on your tax return for those three years.
- This includes tax forms you may receive like W-2’s, 1099 forms and receipts for expenses you claim as itemized deductions.
- Security transactions also deserve special attention. When you sell stock, you report both the sales proceeds and cost basis on your tax return. That means you need to be able to document what you paid for stock, regardless of how long you may have owned it. You can keep trade confirmations or you may find it easier to keep the monthly statements you receive from your brokerage firm. Some firms include summary information as part of their year-end reporting, which can make this easier.
- Once the three-year statute of limitation passes for a year’s return, you can dispose of the information that supported the information on that return. But remember the rule for securities.
While there is no need to keep copies of your actual tax returns beyond that three-year period, as a practical matter, most people end up keeping copies of their tax returns forever.
Monthly statements and bills
Each month you will receive bills, statements and other financial information that you will need to handle. There is a great temptation to keep everything, but it’s not necessary.
- Recurring monthly bills – Once you have paid your insurance, rent, mortgage and utility bills, there is no need to keep them. You will have a cancelled check to document payment and unless there is something special about the bills, you can shred and dispose of these.
- Credit card statements – Even though there is no requirement to keep these statements, you may want to save them for some period (a year) in case there is a dispute, you want to return an item, or if you want to be able to analyze your spending.
Storage of important papers or permanent records
Documents to keep forever include: wills, powers of attorney, birth certificates, marriage documents, divorce or child care orders, trust documents, business agreements, military records and other permanent records. There are other documents that should be kept as long as they may be needed:
- Bank statements and cancelled checks – You should keep cancelled checks supporting any tax deductions and any you think may come in handy. Otherwise, cancelled checks may take up a lot of space and can be shredded. Bank statements are a bit different. You may want to keep them for some period (three years or so) so you can document your payments for important items.
- Insurance policies – as long as they are in effect or until a claim could no longer be filed.
- Loan documents – until they are paid off.
- Deeds and real estate papers – as long as you own the property plus any period for tax purposes.
- Employee benefits information – as long as you are employed or until the benefit no longer exists.
- Investment records – as long as you own the investment plus the three-year tax reporting period.
- Receipts and warranty information on major purchases – as long as you own the item and could make a claim.
Creating a filing system
Most people end up using filing folders in a drawer to keep their financial records. If you do not have a drawer to use, buy a plastic storage bin. Buy a box of folders and label them for each type of expense you normally have and for other types of records you plan to keep – rent, utilities, auto, insurance, home ownership, family, employment, bank or credit union statements, retirement, medical and any other categories you need. Once you have the files set up, simply store your receipts, statements and other information in them. There is a good chance that some of the folders will get quite bulky over time. When that happens, you can start a new folder or shred what you do not need. For information you receive in an electronic format, just create folders on your computer and be sure to back them up on a regular basis.
The first step in managing your finances is being organized with all your information. With these tips, you’re on your way to staying on top of your accounts and reaching your goals.