“Why on earth declutter when you can just shrinkwrap?”
~ Sophie Kinsella, The Undomestic Goddess
Question: How long should I keep financial records and documents?
Answer: This question comes up frequently around tax time, when people downsize, or start spring-cleaning. Anytime is the right time to tidy-up and organize. While much of information moves to computers and the cloud, we still need to know which documents to keep and what to shred and destroy.
People often need people to help de-clutter their lives. Organizing consultants are becoming the new life coaches. Reality TV shows based on this concept are popular. It’s inspirational to watch others go through closets and toss useless items they’ve unnecessarily hung onto for years. The results are worth it.
If you’re serious about decluttering, start by turning off the TV show “Tidying Up with Marie Kondo” and fearlessly walk into your home office or the place you keep important documents, then courageously address the piles of unopened envelopes covering the desktop. Next, bravely open the drawers that are full of old paperwork and to tackle the job at hand. Be ruthless, this could be a life-changing event.
- Good Riddance
Many people don’t view holding onto financial paperwork as offensive as being untidy. Paperwork can almost be admirable and there might be documents we’ll need at some point. But truthfully, most of it’s really not worth keeping. Ask yourself how much time is wasted sorting through piles and also the cost of fees if bills are overlooked. Learn to say goodbye and discard. Start with ATM receipts after checking bank statements. When a bill payment clears or you decide to hang onto a purchase, it’s time to part ways with statements or sales receipts. Unless it’s needed at tax time (keep for at least three years if used for a deduction), as proof of value for insurance loss or damage, or for a warranty, it’s probably time to say good-bye.
- What to Keep and For How Long
- Medical Records: once the claim is or if you’re taking a medical exemption for taxes, shred away.
- Utility Bills: dispose of when bill payment is recorded. If selling your home, potential buyers may be interested in the data.
- Loan Documents and Insurance Policies: these are keepers, just like birth certificates, marriage license, Social Security card, passports and other important documents. Hold originals in a fire-proof/water-proof safe. Make copies and keep photographs of these in a separate location.
- Tax Returns and Supporting Documents: It’s suggested you keep the most recent returns for three years returns although the IRS can audit you for the past seven years. Paystubs should be kept until you receive your annual W-2 form.
- Home Improvement Records: may be used to offset capital gains.
- Bank Statements: keep for one year.
- Investment Documents: Keep all capital gains documents and associated annual tax returns for a minimum of three years.
- Your New Best Friend, a Cross-cut Shredder
Invest in a high-quality shredder become friendly with someone who has access to one. Identity theft and cybercrime continue to skyrocket. Keep it simple and have four choices; shred, throw away, recycle or file. Establish an easy to follow filing system. Have some fun, invest in colored folders with tabs and a label maker if you don’t already own them. Categorize, label, and keep everything up to date in a drawer or filing cabinet.
- Switch to Digital
Going digital with your statements and paychecks can help solve a lot of problems.
Almost financial institution, credit card company, and employer now offer a paper-free option. Take them up on this and switch to paperless delivery. Surprisingly, just 12 to 15 percent of bills and statements are electronic. Although opting in to e-delivery helps prevent additional physical clutter, you may still have a big mess on your hands, but this one will be on your computer. To prevent substituting one mess for another, make sure you employ the same discipline for your desktop display as you are with your physical desk. Keep it clean and organized, regularly go through your emails and purge the ones that are no longer relevant.
- Just Do It
Make upkeep a normal routine. Play some music and get motivated to fire-up the shredder. The longer you wait to tackle that mess, the bigger the mountain of paper will grow. Ask for help whether it’s a friend to keep you on task or your own organizing consultant. Anything that will prevent procrastination and help you focus. Your financial advisor is a great resource. She or he may suggest other secure methods of dealing with your financial clutter. Together you can develop a strategy of what to keep and what to discard. Parting is such sweet sorrow, don’t wait until tomorrow. Stay focused and shred accordingly.
The opinions expressed are those of the writer, but not necessarily those of Raymond James and Associates, and subject to change at any time. Information contained in this report was received from sources believed to be reliable, but accuracy is not guaranteed. Always consult with financial, legal, estate and tax planning professionals before taking any action regarding this planning. This information is general in nature and is not a recommendation of any particular strategy.
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This article provided by Darcie Guerin, CFP®, Vice President, Investments & Branch Manager of Raymond James & Associates, Inc. Member New York Stock Exchange/SIPC 606 Bald Eagle Dr. Suite 401, Marco Island, FL 34145. She may be reached at 239-389-1041, email firstname.lastname@example.org. Website: www.raymondjames.com/Darcie.