My house was a disaster! I had a sea of paperwork starting in the living room and moving through the rest of the house. Statements and notices covered every flat surface, spilling off counters, tables, desks and chairs. Papers were stacked in boxes, piled on the floor, in bags in the closet…everywhere! Sound familiar? How many of you find yourself in this situation? And what about the rest of you who throw out everything? Once that bill is paid, should you just toss it and forget about it? What about the “7 year rule?” What exactly does that apply to? Millions of Americans don’t know what papers can be tossed safely or what needs to be filed away. Some papers and documents need to be kept. Some can safely be tossed. Here are some tips to help you get a handle on that paperwork.
One purchase that has helped me immensely is an accordion style file folder. Try to find the type with 12 or 13 pockets. I bought the heavy paper type with the elasticized band. I have one of these for each year. I can write the year on the outside with a permanent marker. Each pocket should have a tab you can label. I chose: Automotive, Bank Statements, Credit Cards, Investments, Insurance, Medical/Dental, Mortgage, Pay Stubs, Receipts, Taxes and Utilities. I’m left with an extra pocket in the back for miscellaneous papers that I don’t want to get rid of such as letters, certificates, etc. If you choose not to get a file folder, consider a file box or a filing cabinet. I actually take all my file folders and put them in order in my filing cabinet.
Buy yourself a paper shredder – preferably one that cuts the paper into confetti. This will greatly reduce your chances of becoming a victim of identity theft. When you receive credit card or loan offers in the mail, put them through your shredder before tossing it in the trash. Otherwise, an identity thief could go through your trash and take out a loan in your name.
Once you have a filing system and your paper shredder ready, it’s time to go to work.
That Seven Year Rule doesn’t apply to everything. Some things only need to be kept for a few years. Sometimes less than three years is enough.
These documents need to be kept for up to three years:
- Papers confirming the selling/buying of stocks, bonds, etc. Discard your quarterly statements once you receive the year-end statement.
- Pay stubs. Keep weekly/monthly stubs to match up to your year-end statement and W2. Then shred the stubs. Keep your year-end stubs for at least three years.
- Personal utility and telephone bills. You may shred as soon as they are paid, or keep them for financial records. If you plan on selling your property in the near future, keep your records for at least a year. Prospective buyers may want to review recent utility bills to determine what they can expect to be paying.
- Credit card statements – if they list tax deductible expenses or charitable gifts. Keep those with your tax papers. If not, shred at the end of the year.
- ATM receipts & bank deposit slips. As soon as they appear on the bank statement, shred them.
- Medical bills. Hang onto these for at least a year in case you have a dispute over a reimbursement or are billed for something already paid. I have even heard of a previously resolved dispute cropping up again 2 and 3 years later. If the amount in question is very large, you may want to consider hanging on to it a while longer. Shred unless they support a tax deduction, in which case, file with your tax documents.
These documents need to be kept for at least seven years:
- Income tax returns (state and federal) with all documentation. Supporting documents include receipts for business expenses, charitable contributions, and cancelled checks for any other tax-deductible expense. Usually tax returns will be audited within 3 years. Sometimes, an audit may be held 6 years after the return is filed. Therefore it is wise to keep tax returns and all tax documentation for the last seven years. If you haven’t kept your past tax returns, they are available from the IRS for a fee of $39. If you need to obtain a copy of a past tax return, you can visit the IRS frequently asked question, How do I request a copy of my tax return for last year?
- Wage/salary records and annual payroll check stubs. This would include W-2’s, 1099’s, etc.
- Cancelled checks or bank statements.
- Savings account records.
- Monthly statements including information from the bank, brokers, mutual funds, 401(k) and other retirement plans, individual retirement accounts (IRAs), Roth IRAs, and 529 college savings plans.
- Automobile/vehicle, truck, and farm machinery titles. When you sell it, give the maintenance records to the new owner along with the title.
- Guarantees and warranties. Write the date and place of purchase on the guarantee or warranty. Keep records of the type and date of all repairs. I don’t usually store these with my regular financial papers. I keep these in manilla folders in my filing cabinet. It is a good idea to have one for each of your large appliances, lawn machinery, and power tools.
These documents need to be kept forever:
Store these in a safe deposit box at the bank or a fireproof box in your home. If you choose to rent a safe deposit box, it is a good idea to make an inventory of the contents and put the list in your financial notebook or permanent file at home. Fireproof boxes are available at office supply stores and home improvement stores. Documents to keep in one of these storage places are hard-to-replace documents including:
- Your will (file a back-up copy with your attorney).
- Birth certificates, death certificates, marriage licenses, prenuptial agreements, alimony and child-custody agreements, divorce decrees, adoption papers, military records, and citizenship papers.
- Your health care power of attorney, which gives someone the right to make medical decisions for you if you become incapacitated.
- Copies of your IRA, 401(k) and other retirement account participation plans. These forms determine what happens to the money in these accounts when you die, not your will. If you haven’t kept copies of the forms that name your plan beneficiaries, contact your retirement plan custodians and they will send you copies. Keep your beneficiary names and addresses current.
- All your current insurance policies including home, health, disability, and auto. If something were to happen to your home, you need to have copies of these in a protected place.
- Keep documents showing the dates and cost of improvements to your home. These records can help in the case of a dispute over damage from flood, fire, or other disasters and can help the insurance company cover your losses. These can be tossed once you move or sell your home.
- You should keep bills for big purchases (e.g., jewelry, appliances, cars, collectibles, etc.) for proof of their value in the event of loss or damage.
- Deeds, property titles, mortgages, stock and bond certificates, and employment contracts.
These are only guidelines. There are many online resources that have somewhat differing opinions for how long you should keep various documents. I was going to toss out all my tax returns older than seven years when I decided to keep the past TEN years worth. They really don’t take up all that much room. Especially since I just purged a lot of other papers. I tend to err on the side of caution.
When you come right down to it, the key is to simply find a system that works for you. The accordion style file folder works for me. I can keep the current years folder under my desk and file papers in it once a week. If I need to go back and find a paper, I know where to find it. Whatever system you choose, do it well and stick to it. After the initial overhaul, you’ll find it doesn’t take much time. And think of how much better you’ll feel when you don’t have to look at mounds of papers everywhere! You can do it! I did.