Organize Your Financial Life: Safe Keeping for Important Documents

We all have that pile of “important” documents that we’re not sure if we should keep or toss. Or maybe you get most things electronically now and have been saving them all in a file on your computer. Either way, that file keeps growing and it’s time to tackle it once and for all. Knowing what to keep and what to toss is important so we’ve created some guidelines for organizing your documents.

To begin, some general guidance is that any documents you can access online by logging into your account (such as bank or credit card statements, utility bills, insurance claim details, etc) can be shredded immediately. As long as you remember your password and where to find those statements in your account, you’ll have them if you need them. For everything else, it’s important to have some type of filing system (paper or electronic) so that when you need it quickly, you’re able to find it.

Tax Returns: For prior year tax returns and all supporting documentation (W-2, 1099, receipts, etc), the IRS offers guidance on timelines for keeping documents. These can differ if returns have errors or you accidentally under-report income. An overall rule of thumb is to keep your information for seven years; that should cover you in all situations.

Loan Documents: Documents you’ve signed to borrow money for cars, homes, student loans, etc should be kept for as long as you have the loan plus seven years (for any tax reasons).

Home Improvement: If you have made improvements (new sidewalk, added a sunroom, installed central air conditioning) to your personal residence, keep all the receipts to use to reduce your taxes if you sell your home. You can’t deduct them now, but they’ll be of value in the future. Repairs (fixing gutters, painting, etc) are not home improvements as defined by the IRS.

Receipts: Several stores offer the option of emailed receipts now, which is a nice way to keep track of your purchases without the clutter. If you’re still opting for paper, most receipts can be thrown away as soon as you reconcile your credit card/bank statement. If you paid cash and there is no chance you’ll need the receipt for a return, you can trash it immediately. For more expensive purchases (appliances, jewelry, electronics) that have a warranty or return period, keep the receipts until that return/warranty window expires.

Medical Expenses:  For medical expenses itemized and deducted from your taxes, or paid out of a Health Savings Account (HSA) or Flexing Spending Account (FSA) you’ll want to keep your receipts (with your tax file) for up to seven years to show that the funds were spent on qualified expenses. Many HSA and FSA providers have online tools to upload receipts for tracking which is a nice feature. If you have this option and upload the receipt, you can shred it.

Insurance policies: For individual life, health, disability, long-term care, home, auto, umbrella (liability) and other insurance policies, you should keep the original policy papers and any amendments until the coverage ends, pays out, or is canceled. For specific items covered by your homeowners or renters insurance, keep the receipts and photos of big-ticket items to support your insurance claim in the event of theft or damage.

Original documents:  This would include things like your social security card, birth and death certificates, adoption papers, passport, marriage certificate, divorce decree, deed/bill of sale for your car or home as well as any estate documents (will, living will, durable healthcare power of attorney, durable power of attorney). Keep these and other important documents forever; preferably in a locked fire-and-waterproof box or at a bank in a safe deposit box.

Whatever your preference, paper or electronic, find a filing system that works for you. Organize it by year, by category, or both. If you’re tired of all the paper and ready to go electronic, log into your accounts and choose the “paperless” online or e-statement option. If paper is still your preference, use a file cabinet, shoe boxes or expandable folders to organize and keep everything in a safe place. If you do keep all your documents electronically, make sure you backup your files, either to external drives or to the cloud. Finally, review your files at least annually and clean out any old documents based on the guidance above.