It’s time to get your financial records in order, for a whole host of good reasons, from preparing more efficiently for tax season to heading off the potential for identity theft and fraud. Organizing your financial records also can help when disputes arise over bills, when you need to appeal a decision by your insurer over coverage or if you want to exercise the terms of a warranty.
Financial housecleaning is easier than you might think, and it’s more important than ever before, given the complexity and speed of modern life. It’s going to take a while – no sugarcoating here – but the peace of mind is well worth the effort.
Start by collecting any records lying about, sorting them first into piles that need to be secure, files that can be stored in a file cabinet, and records you can dispose of.
Once you have your piles of record sorted, it’s time to figure out what to keep, and where to keep it. For that first pile, personal records that you know should be kept private, consider a fire-safe container, or better yet, a safety deposit box at your local bank. A small deposit box will cost you about $40 a year, and it has plenty of room for your documents as well as any other small valuables you might want to secure. Open the lease jointly with your spouse or a close family member or friend and you’ll be covered. At the very least, use the fire-box or safety deposit box for the following documents:
- a current copy of your will
- trust documents
- birth certificates
- marriage licenses and/or divorce documents
- military service records
- diplomas, licenses, permits and any other official degrees
- citizenship documents
- power of attorney authorization
- living wills
- mortgage contracts or rental agreements
- any legal documents
Consider reserving a file cabinet for your other financial records. These include insurance policies, the past three years’ tax returns and bank statements and cancelled checks. Three years is a good rule of thumb for keeping financial documents, as it mirrors the IRS statute of limitations for audits. Every year, you can go in and dispose of the oldest documents in your files.
You should also retain two years’ worth of monthly credit card statements, in case you need to make an insurance claim on an item purchased with a credit card, or if you need to substantiate a purchase for warranty claims. Again, at the end of each year, destroy the oldest statement to keep the clutter down.
Receipts for purchases can really pile up, so keep only the ones you’ll need at tax time for charitable donations or other deductions, as well as any big-ticket items you’ve purchased. A great way to keep track of those major purchases is to staple the receipt to the owner’s manual, warranty manual or other supporting documentation.
Start a separate file for medical and pharmaceutical receipts and hang on to those for at least a year, in case you have a disputed insurance payment. These can also come in handy at tax time if you face a particularly expensive health issue, because if your expenses exceed 7.5% of your income, you’ll qualify for a tax deduction.
Start a file for each of your retirement and other investment accounts, and keep those statements on hand for a year at a time. Make sure any account numbers are blacked out, though, if you’re keeping them in your file cabinet. Any certificates of ownership for your stocks, bonds, and other investments should go in the fire-safe box or better yet, the safety deposit box.
Finally, create a master index to keep track of where all your documents are stored – in the safety deposit box, in a fire-safe box or in the file cabinet. This will help you keep organized, but more importantly, it will be invaluable to your family should something happen to you.