Start a Basic Filing System
There is a lot of financial information that needs to be organized and processed, and a simple filing system can make this less of a chore. You can essentially break down all of your financial papers into the following categories:
Bills dueImportant documents to keepItems to throw away or shred
It is that simple. Either you have a bill that needs to be paid, a receipt or document that should be saved, or something that can be discarded. It is up to you how you want to organize these items, but it can be as simple as using three individual folders labeled with the above information. Then, whenever you get the mail or receive another financial document, take a moment to put it into the correct folder. That way your bills and important documents are in one easy to find place. You can then regularly process the folders and permanently store the important documents and toss or recycle what you don’t need.
Keep Important Documents Organized
While the basic filing system will do a good job of keeping your daily finances in order, you will still want to organize the important items you need to keep. Generally, you can use a small file cabinet with individual folders to keep everything in order. Some examples of financial documents you should keep:
Tax returns Insurance policies Mortgage documents Investment and retirement account statements Warranties or service contracts
How Long to Keep Your Documents
Since you need to keep copies of certain documents, how long should you keep them? In some cases, you may only need to keep a document or form for a short time, while others you may want to hold onto for years. Here are some common financial documents and the length of time you should consider keeping them. Tax ReturnsWhen it comes to your tax returns, it is recommended that you keep them for seven years. If the IRS wants to audit your returns they generally have between 3-6 years to go back from the date you filed. Keeping seven years of past returns on hand will keep you covered and make your life a lot easier if you do get audited. Not only that but if you plan on buying a home or will otherwise need to show proof of income to a lender it’s nice to have at least a few years worth of data at your fingertips. Mortgage DocumentsWhen you buy a home you’re going to sit down at the closing and sign your name on what seems like hundreds of pages. Generally, you will receive a big folder with copies of everything you went over at closing. These will include documents from the bank that outline the loan, information from the real estate company, appraisal and inspection information, and much more. While you may not need to refer to these things frequently, you should keep these documents indefinitely. You may need to refer to them in the future, and they could provide some valuable information when you eventually go to sell the home. Bank and Investment Account StatementsIf there’s one good thing about the internet, it’s that you can often pull up electronic copies of your bank and investment account statements at any time. It eliminates the need to keep every single statement you receive. Still, it’s a good idea to review each paper statement you receive and if they are quarterly, keep them until the next statement arrives. Once you receive the year-end or annual statement you can safely toss all the monthly or quarterly statements. It will cut down on how many pieces of paper you have to file away, and in all likelihood, you can obtain additional copies online or by making a quick phone call. Bills and ReceiptsAs you receive utility and credit card bills, it’s a good idea to keep these for a year after checking to make sure the information is accurate. Mistakes can happen and if you have a copy of your statement readily available it can make it easy to dispute an error. The same thing goes for receipts. You should keep them long enough to compare with your bank statements so you can catch any errors. That is, of course, unless the receipts are for purchases that can be used for tax purposes. In this case, you’d want to keep those receipts for up to seven years just like your tax return in the event of an audit.
Keeping Your Information Safe
Identity theft has become a big problem in recent years. Thieves can take bits and pieces of your personal and financial history and use it to create fake identities that can ruin your credit, drain your bank accounts, and otherwise give you a major headache. So, it’s important that you protect and dispose of your financial data properly. First of all, consider buying a paper shredder for your home. All of those old utility bills and even unused credit card offers you get in the mail each month can be prime targets for thieves. By shredding your unused documents, you can be sure that you’ve minimized the chances of someone stealing the information. It also means you should secure the documents you do keep in the house. If you just store everything in cardboard boxes in the basement what happens if there’s a flood? Years of data could be lost. The same thing goes if there’s a fire or other disaster. While you can’t protect against every single possibility, you can at least get a strong, sturdy, and possibly even fireproof filing cabinet or locking container that will keep your documents relatively safe and out of the wrong hands. You don’t need to go overboard, but you also don’t want everything just sitting around in a few old shoe boxes in your closet, either.
Being Organized Can Even Help Your Heirs
If something happens to you, the organized financial documents can tremendously help those who will be taking care of your affairs after you’re gone. It can streamline the settling of your estate. If you have a will, it is also important to have a letter of instruction so that the executor knows where to find these documents.
