If the paper monster has you buried under an avalanche of receipts, bank statements, ATM slips, investment records, paycheck stubs and bills, the good news is you can probably throw most of it away without worry when you have a simple record-keeping routine.
But before you fire up the shredder, you need to know what to keep, and for how long.
Toss all you can
Monthly. Once you have recorded the amounts on and reconciled your bank and credit card statements, you can shred ATM receipts, bank deposit slips, credit card receipts and sales receipts at the end of each month.
Exception: Keep receipts for purchases that may be tax-deductible, those that involve a warranty and those for any item whose replacement cost exceeds the deductible on your homeowners’ or renters’ insurance.
Yearly. Once you receive and reconcile your W-2 against your final pay stub, you can toss your paycheck stubs for the year, along with monthly credit card and mortgage statements, phone and utility bills, and quarterly and monthly investment reports.
The same goes for other statements that detail the entire year’s activity on the final end-of-the-year statement.
Keep what you must
3 to 7 years. Hang onto the following for at least three years: year-end statements for credit card accounts; mortgage statements; investment statements; W-2s and 1099s that recap the year’s activities; canceled checks; and receipts for deductible expenses, retirement account contributions, charitable donations, child care bills, mortgage interest and all other items that support your income tax filings.
The IRS has three years to examine your tax return for errors and up to seven years if there’s a reason to suspect that you underreported your gross income.
Until all possible audit windows close, you should retain all documents that support and pertain to your IRS filings.
Indefinitely. Keep tax returns for the long haul. Keep receipts for major purchases and home improvements as long as you own them. In the event of an insurance claim, you may need to prove the purchase, or your heirs will need to know how much you paid to determine the profit for tax purposes.
Forever. Birth records, military records, marriage and divorce records, death records, education records, employment records, medical records, lawsuit records and family history documentation should be kept forever.
Pick a spot
If you don’t have a designated place for important paperwork, it’s going to end up in piles all over the house.
The secret to taming the paper monster is to designate one room, corner, drawer, cabinet or closet where you can store all of your bills, current records and paperwork. You’ll need a trash can, file folders, some kind of box or container to hold them, as well as a place close by to write.
Keep all of your important papers in this one place, and if you will be keeping it for more than one month, create a file folder. One folder might be labeled “Tax-Deductible,” another “Insurance” and so on.
Stick to it
Get into a routine of tossing what you can and then filing the rest. Keep your system simple and you’ll be more likely to stick with it.
You don’t need to spend a lot of money to get organized. Four boxes with lids plus a good set of markers makes a dandy system. Label the boxes “Three Years,” “Seven Years,” “Active/Indefinite” and “Forever.”
You’ll be amazed at the difference a little organization will make in your life. You’ll be less likely to misplace bills, miss payment deadlines or forget to take valuable tax deductions. But the big payoff will come in the peace of mind.