Learn How to Organize Financial Records

A New Year for Organization
This month, it’s time to reflect on what you truly need to keep and what you don’t, to better organize your financial records. By answering a few key questions, you can earn the peace-of-mind to shred the unneeded financial paperwork that clutters file cabinets, desk drawers and shoeboxes in your home!

Question What You Keep
Keeping certain records can be more of a science than a rule, so here are a few key questions to ask when getting started:

1. Am I still paying on this item?
2. Is this transaction still showing on my credit report?
3. Did I report or itemize this item on my taxes?
4. Does this item have important personal or historical value?
5. Would I need proof of this payment in court?
6. Could this receipt help me win a legal dispute?

If the answer is ‘no’ to all of the above (and you agree with the charges) you can feel comfortable shredding! If the answer is ‘yes’ to any of these questions, the related records should be filed and kept from anywhere between a year to permanently. For your ‘yes’ answers, here are some general guidelines to help you figure out how long to keep those related records.

Records to Purge Monthly
Most people keep utility bills and receipts for small purchases longer than necessary. One month is an appropriate amount of time to keep these records, once the bills have been paid. A good rule of thumb to cut down on the amount paper in your files is to keep these records only as long as you are actively paying bills or payments are pending. Keeping last month’s water bill can be an important reference to be sure your payment was recorded, but keeping a year of water bills is unnecessary unless you are in dispute over the charges.

ATM receipts are additional unneeded paperwork that can be confidently shredded once you’ve reconciled with your monthly banking statements. In addition, receipts for clothing, food and smaller household items also only need to be kept as long as they are active (you may return the item, you need to check your statement, etc.). The cash receipt for a new pair of shoes only needs to be kept until you know you are not going to return them. The same goes for the receipt for the grocery items you picked up for this weekend’s dinner party.

Organize it: Sort your monthly items into two file folders: “Active Monthly Bills” and “Active Monthly Receipts.” Once you have paid a bill or reconciled a receipt with your bank records, mark with the date and put it in an “Inactive Monthly” folder. At the end of the month double-check everything in your “Inactive” folder and shred anything that’s been recorded or reconciled.

Records to Purge Yearly
Monthly bank statements, monthly (or quarterly) investment statements and pay-stubs can all be purged from your files during the first couple months of a year, as long as you’ve reconciled them against your annual statements. If the numbers match between the monthly/quarterly and your annual statements, there is no need to keep record of each individual month.

Cancelled checks from closed accounts, expired warranties, or instructions for appliances and household equipment you no longer own have all earned a date with the shredder. As have cancelled checks for minor purchases that did not fall under the ‘yes’ category when asking the ‘what to keep’ questions.

Organize it: Whether you use a filing cabinet, accordion file or desk drawer, choose one spot to store all of your “yearly” paperwork. This way, when a new year starts, you know right where to go to start reviewing and purging, instead of searching around in multiple areas or piles.

Records to Purge Every Seven Years, Or So
The IRS requires that you keep your tax returns and related documents as long as is necessary to prove the validity of those returns. There are experts in the field who say this means forever, and others that say that seven years is a sufficient amount of time. Only you can decide what is pertinent to your situation. These records include your W-2 statements, home improvement or major home repair documents, tax returns and legal correspondence. Other elements that may fit into this category include anything that could include your cost incurred on an investment that you may eventually plan to sell.

Organize it: Keep these records in a safe place and separate them from monthly and yearly documents. Each year, when you do your taxes create a new folder or large envelope for the next year. You’ll already have a place to start collecting any receipts, documents, or paperwork you’ll need when it’s time to do your next return.

Your Permanent Records
There are a few records out there that should have a permanent place in your files, and may also be worthy of being copied and stored in a secure, secondary location such as a safe-deposit box, a locked fireproof box or kept off-site with a trusted guardian. These records include an inventory of personal valuables, diplomas and/or college transcripts, medical history, employment records and records involved in disputes. They also include vital documents such as birth certificates, marriage license, Social Security numbers and passport documentation.

Smart Shredding
Every home needs a paper shredder, and there are plenty of inexpensive models out there that are up to the job of shredding all of those documents you no longer need. Using a shredder will provide you with security in the act of disposing of your personal records. Some newer shredders are even able to handle larger items like old or cancelled credit cards and compact discs.

With some time spent reviewing your existing paperwork, and knowing you’ve asked the right questions, you can be confident you have the tools you need to keep your paperwork organized throughout the coming year.