Paperwork

Financial Paperwork: What to Keep, What to Toss

Friday, May 27th, 2011

Anyone enjoy filing papers?  I didn’t think so.  But you’ll be glad to have done the job with some sense of order should Uncle Sam ever come calling with a question about what you put on line 43 of your 1040 from ‘08.

I recommend keeping financial paperwork in three different places: an easily accessible day-to-day file cabinet for all financial statements you get in the mail, a doesn’t-need-to-be-so-accessible long-term financial file cabinet for statements that should be kept for more than a year, and a safe deposit box.

If you get electronic statements for various bills, set up separate e-mail folders and keep them there.  Bookmark the web sites for each of your financial providers as well and keep those bookmarks in a separate bookmark/favorites folder.

Here are my recommendations for what to put where and how long to keep it.

Day-to-Day File Cabinet

Income. Keep your pay stubs throughout the year and then toss them (always shred financial documents you throw away) after you get your W-2 and after you’ve made sure the info matches up.  Then put the W-2 in your income tax folder.

Charitable Giving. Keep statements and receipts you receive throughout the year, but when the year is over you can toss all of the statements other than the year-end statements.  Put year-end statements and receipts for other donations in your income tax folder.

Bank or Credit Union Checking/Savings Statements. Same as above – keep monthly statements until you get your year-end tax statement.  Then you can throw away the monthly statements (assuming you’ve been reconciling them each month) and transfer your year-end statement to your income tax folder.

Throughout the year, you can toss ATM receipts as soon as you reconcile them.

Investment Statements. Again, keep monthly or quarterly statements until the end of the year.  Then you’ll typically get a year-end summary statement and a separate tax statement.  Put the summary statements in your Long-Term Financial File Cabinet.  Put your year-end tax statements in your income tax folder.

Income Taxes. After filing your taxes, keep your income tax folder, which should contain copies of everything you filed along with supporting documents.  Keep these folders in your Long-Term Financial File Cabinet for at least seven years.

Debts. At the end of the year, you can toss your monthly credit card statements and any monthly paperwork related to vehicle, education, or other loans. For loans with tax ramifications such as qualifying student loans, put year-end statements in your income tax folder.

Housing. Put year-end paperwork related to mortgage interest and property taxes in your income tax folder.

Hang onto maintenance, repair, and remodeling receipts and transfer the folder to your Long-Term Financial File Cabinet at the end of the year.  These records will come in handy if you ever have problems with something that was worked on before and when you sell your home.  Remodeling expenses may impact the value of your home.

I keep our annual homeowner’s insurance statement at least until we get the next one so I can see how the premium has changed.  If it changes a lot, I find out why and may even get other quotes.

Transportation. Put any year-end paperwork related to items that may be deductible, such as a vehicle leased for business purposes, in your income tax folder at the end of the year.

Keep repair receipts throughout the year, transferring the file to your Long-Term cabinet at the end of the year.  When you sell the car, the new owner may want this history.

I hang onto our semi-annual vehicle insurance statements until the next statement for the same reason that I hang onto our homeowner’s insurance statements.

Life Insurance. Keep each statement until you get the next one.

Health Insurance. We don’t get monthly statements.  Our premiums are automatically taken out of our checking account.  But with three young kids, we get plenty of health insurance paperwork – doctors’ bills and insurance statements.  We keep them all throughout the year, and then transfer the file to our Long-Term Financial File Cabinet at the end of the year where we keep it for another year just in case any disputes arise regarding insurance payments.

Utilities. These monthly statements can be tossed after about six months unless you need them for income tax purposes.  Since I’m self-employed and have a home office, we can write off a portion of our utilities.

Other Expenses. Keep receipts you may need for returns, rebates, or warranties.  Also keep receipts for especially expensive items in case you need to prove what you paid for them for insurance purposes.  Others can be tossed.

Long-Term Financial File Cabinet

In addition to the statements I noted above that should be transferred to this file cabinet at the end of the year, here’s what else to keep here:

  • Originals of estate planning documents such as wills, trusts, powers of attorney, living wills (Your attorney, executor, guardians, and/or trustee should also have copies)
  • All insurance policies
  • Passports
  • Social Security statements or benefit estimates
  • Product manuals/warranties

Safe Deposit Box

Some items deserve extra security, such as:

  • Copies of estate planning documents
  • Birth, marriage, and death certificates
  • Social Security cards
  • Original deeds, titles, mortgages, and other contracts
  • Stocks, bonds, and certificates of deposit
  • Other valuables such as seldom-used jewelry, medals, rare stamps, or other collectibles
  • Negatives or flash drives with important photos
  • Videos or pictures of your home’s contents for insurance purposes
  • Adoption and custody papers

Just Do It

If you haven’t set up a system like this, it may seem a little overwhelming.  Tackle it in chunks.  Soon enough, you’ll be in a rhythm of storing, transferring, and tossing the right papers.  And should you ever need one of these documents, you’ll be glad that you can find it easily.

Have you found any ways to simplify your financial record keeping system?

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Categories: Planning

4 Responses to “Financial Paperwork: What to Keep, What to Toss”

  1. Brooke says:

    Thank you Matt, very helpful advice, I will be bookmarking and referring back as we try to wrangle all the paper mess.

    One stubbling block we’ve had is how to protect our privacy when old documents ‘expire’. If you are way behind in the sorting and purging like us, looking into a shredding service may be the best idea, or utilizing a free service offered sometimes by local banks. Or do like I did, and just have a massive shred-a-thon!

  2. Matt Bell says:

    Brooke – Great point about the free shredding offered by some banks. I’m guessing lots of folks have file cabinets full of documents they don’t really need. Instead of dumping them in the garbage, it would be a great idea to check with your local bank to see if it offers free shredding. Thanks for the reminder.

  3. RuthAnn says:

    I’m currently going through some financial papers and this is great advice. I do have one question both of my parents are gone, my mom has been gone since 1993 and my father since 2008. What do I need to keep from all of the paperwork that my mom has saved since they were married in 1968. I know that I have a huge headache coming when I get to those boxes!

  4. Matt Bell says:

    RuthAnn -

    I’d hang onto estate planning documents — wills, trusts, power of attorney documents, and the like. Also any official court paperwork declaring the estate closed and death certificates.

    I’d also hang onto real estate documents related to the purchase or sale of their property.

    I’d hang onto tax paperwork related to filings, including support paperwork like tax-related brokerage statements, within seven years of the current date. Anything older than that you should be able to toss.

    I’d say those are the most important papers to hang onto.

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