How do you keep track of your important financial documents? With the advent of technology, it’s becoming easier and easier to adopt a digital storage strategy over a clutter-creating paper approach. If you’ve been thinking about throwing away old documents and moving other important financial information to the cloud, this blog is for you. In one weekend, you can organize your financial life, improve your document security, AND free up some space in your file cabinet! Sound good? Read on!
Choose Your Technology
For starters, you’ll need a good scanner to transfer any paper documents you need to save. Many printers come with high-quality scanners now for less than $200, but if you’re looking for a dedicated scanner for the task, Tech Wizdom offers more than 10,000 reviews of the best document scanners, in either sheet-fed or flatbed models.
You’ll also need to make some decisions about where and how to store your financial information. Bankrate gives you the pros and cons of using five different storage devices, including web-based storage services, flash drives, CDs and more.
Finally, consider purchasing a paper shredder to destroy your printed documents once you’ve scanned them. You can spend a little or a lot on a shredder, depending on your needs, but security should be your utmost concern. PCMag reviews the best shredders for tax time and beyond, and recommends selecting a cross-cut model, which chops paper into confetti-like pieces and prevents identity thieves from piecing your documents back together.
What to Keep, and for How Long
A lot of people are afraid to throw out paper statements, taxes and other important documents, because they’re not sure how long to keep them. To be honest, no definitive rules exist for how long to save documents, because each person’s situation is different, and some people are more conservative than others. Here’s my general guide:
Tax documents: The IRS provides guidance on how long taxpayers should keep tax records, and the guidance varies according to a variety of scenarios. Generally, though, a conservative approach would be to keep taxes for at least seven years. That includes not only the returns themselves, but also all of the supporting documents, like W2s, 1099s, receipts for charitable contributions, mileage logs, and receipts.
IRA contribution records: You should plan on keeping these documents permanently, in case you need to prove that you paid taxes on it when you get to the age where you begin to withdraw funds.
Ret Statements: If you have a 401(k), keep your quarterly statements until you receive your annual statement, and then check to make sure they are consistent and accurate. You can destroy the quarterly statements then, but save the annual statements until you close the account or retire.
Household bills: In general, you can shred a bill once you have confirmation that the billing entity has received your payment. (That could be once you receive a canceled check, or when you see the money has been debited from your bank account.) If you purchase a major item, such as jewelry, furniture, collectibles, etc., save your bills and receipts for insurance purposes, to help you prove the value of the item if it becomes lost, damaged or stolen.
Brokerage Statements: Keep these, along with purchase/sales receipts, as long as you own the securities, because you’ll need them to prove capital gains or losses for tax purposes.
Bank and Credit Card Statements: Many banks and financial institutions provide access to accounts online, which is helpful if you need to access a prior statement for tax purposes. However, be sure to find out what your financial institution’s policy is for records retention. If you need something from 10 years ago, it may no longer be available. If you have access to your statements online, then just review your printed statement for accuracy and then shred it.
Paycheck Stubs: Save these until you receive your W2 from your employer, and then discard after comparing the two to ensure they agree.
Records Related to Your Home: Hold onto any documents that demonstrate what you paid for the home, any improvements you made to it while living there, and any expenses incurred in purchasing or selling the property (such as attorney fees or real estate agent commissions). These items could help you lower your capital gains taxes when you sell your home.
Other Types of Documents
Some people prefer to keep items like wills or estate documents in paper form, and secure them in a safe-deposit box. That only works if you’ve arranged for a loved one or trustee to gain access to the safe-deposit box if you become injured or die. If you haven’t made such arrangements, your loved ones will need a court order to access the box. If you can store these documents online in a secure fashion, you can also provide electronic access to those who need it.
That said, some one-of-a-kind documents are best kept in a safe-deposit box. These include social security cards, marriage, divorce or adoption records, birth certificates, car titles, property deeds, military discharge papers or articles of incorporation for a business. Any important documents you use more frequently (a passport, for example) could be kept at home in a fire-proof home safe.
A Final Word
People often don’t think about how their affairs would be managed on a daily basis if they became severely injured or sick and in a coma for a lengthy time. (A fatal accident could also be a factor.) Do you have instructions for what bills to pay, how to care for your pet(s), what services to cancel or subscriptions to stop? If not, consider building a financial “scrapbook” with instructions for loved ones. This should be in an easily updateable form, such as a loose-leaf binder, or a jump drive (www.financialscrapbook.com offers one with fields you can fill in for each type of document).
At M.J. Smith & Associates, we urge clients to be prepared for emergencies, and to keep proper documentation for their own peace of mind. If you have questions about what to save and what to toss, or would like assistance in reviewing your complete financial picture, contact us for a complimentary, no obligation consultation. We’d be glad to help.
This information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of McKenzie Ebbesen, CFP®, and not necessarily those of RJFS or Raymond James. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.