Organize Your Financial Life

Frustrated by the ever-increasing pile of paper on your desk?

Take some time now to organize your finances and reduce your paper clutter. The trouble is, you might not know when you can go entirely paperless, and when it makes sense to hold onto things. Read on for some simple rules that can help.

KEEP THESE FOR UNCLE SAM

When it comes to tax-related documents, it’s no longer necessary to keep paper versions of everything. The Internal Revenue Service (IRS) accepts electronic records, and most financial institutions offer access to statements online. That said, it’s important to keep the supporting documentation from your tax returns—whether paper or electronic—for at least seven years in case you’re ever audited by the IRS. It may be a good idea to keep your tax returns indefinitely, should you or your heirs need to access the information they contain.

KEEP THESE FOR YOUR RECORDS

Whether you choose to house them electronically, in paper form, or both, these additional documents should be included in your personal financial records:

  • Receipts for assets you hold outside of a retirement fund, such as for stocks or home improvements—keep as long as you own the asset, plus seven years
  • W-2 forms—keep until you start drawing Social Security
  • The following retirement account tax forms—keep until those accounts are closed:
    • Form 8606, which helps you calculate your tax basis for future retirement plan withdrawals
    • Form 5498, which shows your individual retirement account and Roth IRA contributions
    • Form 1099-R, which shows your qualified plan and/or IRA withdrawals
  • Year-end loan summaries—keep until you pay them off, then keep the final notice indefinitely
  • Receipts and appraisals for large purchases—keep as long as you own the items
  • Important life event papers, such as birth, marriage, and death certificates, divorce papers, and military discharge papers—keep for life

Even if you keep paper versions of this documentation, it’s a smart idea to have electronic backup copies. You can scan your paper copies and store the electronic versions on CDs, thumb drives, external hard drives, or with online services.

USE THEM, AND THEN LOSE THEM

Now that you know which documentation you should keep, it’s time to find out what you can purge. The following items can go into the shredder:

  • ATM and bank deposit receipts—discard once you reconcile them with your bank statements
  • Credit card receipts—discard once the purchase shows up on your statement, unless you need the receipt for tax purposes or because it’s a large purchase
  • Pay stubs—discard once you get your year-end summary
  • Receipts for minor purchases—discard after three months or once you know you won’t return the items
  • Utility, phone, and internet bills—discard once paid, unless you’re writing a portion of them off for a home office
  • Old insurance claims—discard once paid, after one year
  • Old Social Security statements—discard once you get a new one
  • Workplace retirement plan statements—discard upon receipt, with the exception of year-end statements for 401(k), 403(b), or 457(b) plans

MINIMIZE PAPER CLUTTER

To keep the paper from piling up in the first place, see if there are any ways you can reduce paper in general. Consider paperless billing and statements and automatic online payments for utilities. For documents you want to file in paper form, an organizing system such as an expanding file with alphabetical labels can help you keep everything in one place.

Though organizing your finances may take some work up front, it will save you time in the long run. You’ll know exactly where to go to find specific documents and what to do with those you acquire on a day-to-day basis.

 

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