An important part of managing your personal finances is keeping your financial records organized.
Whether it’s a utility bill to show proof of residency or a Social Security card for wage reporting purposes, there may be times when you need to locate a financial record or document--and you’ll need to locate it relatively quickly.
By taking the time to clear out and organize your financial records, you’ll be able to find what you need exactly when you need it.
If you are a caregiver for a family member or friend, it’s important that their financial records be organized to make your life (and theirs) a little easier.
Financial records definition
If you tend to keep stuff because you “might need it someday,” your desk or home office is probably overflowing with nonessential documents. One of the first steps in determining what records to keep is to ask yourself – Why do I need to keep this?
Documents you should keep are likely to be those that are difficult to obtain from third party sources, such as:
- Tax returns
- Legal contracts
- Insurance claims
- Proof of identity
On the other hand, if you have documents and records that are easily duplicated elsewhere, such as online banking and credit-card statements, you probably do not need to keep paper copies of the same information.
How long should your financial records be kept?
Generally, a good rule of thumb is to keep financial records and documents only as long as necessary. For example, you may want to keep ATM and credit-card receipts only temporarily, until you’ve reconciled them with your bank and/or credit-card statement.
On the other hand, if a document is legal in nature and/or difficult to replace, you’ll want to keep it for a longer period or even indefinitely.
Some financial records may have more specific timetables. For example, the IRS generally recommends that taxpayers keep federal tax returns and supporting documents for a minimum of three years up to seven years after the date of filing. Certain circumstances may even warrant keeping your tax records indefinitely.
Financial records retention recommendations
Listed below are some recommendations on how long to keep specific financial records should be retained:
Records to keep for one year or less:
- Bank or credit union statements
- Credit-card statements
- Utility bills
- Auto and homeowners Insurance policies
Records to keep for more than a year:
- Tax returns and supporting documentation
- Mortgage contracts
- Property appraisals
- Annual retirement and investment statements
- Receipts for major purchases and home improvements
Records to keep indefinitely:
- Birth, death, and marriage certificates
- Adoption records
- Citizenship and military discharge papers
- Social Security card
Keep in mind that the above recommendations are general guidelines, and your personal circumstances may warrant keeping these documents for shorter or longer periods of time.
Out with the old, in with the new!
An easy way to prevent paperwork from piling up is to remember the phrase “out with the old, in with the new.”
For example, when you receive this year’s auto insurance policy, discard the one from last year. When you receive your annual investment statement, discard the monthly or quarterly statements you’ve been keeping.
In addition, review your files at least once a year to keep your filing system on the right track.
Finally, when you are ready to get rid of certain records and documents, don’t just throw them in the garbage. To protect sensitive information, you should invest in a good quality shredder to destroy your documents, especially if they contain Social Security numbers, account numbers, or other personal information.
Where should you keep your financial records?
You could go the traditional route and use a simple set of labeled folders in a file drawer.
More important documents should be kept in a fire-resistant file cabinet, safe, or safe-deposit box.
If space is tight and you need to reduce clutter, you might consider electronic storage for some of your financial records. You can save copies of online documents or scan documents and convert them to electronic form. You’ll want to keep backup copies on a portable storage device or hard drive and make sure that your computer files are secure.
You could also use a cloud storage service that encrypts your uploaded information and stores it remotely. If you use cloud storage, make sure to use a reliable company that has a good reputation and offers automatic backup and technical support. Ask your professional advisors if they offer cloud storage for you as their client.
Once you’ve found a place to keep your records, it may be helpful to organize and store them according to specific categories (e.g., banking, insurance, proof of identity), which will make it even easier to access what you might need.
Create a personal data record
Another option for organizing your financial records is to create a personal data record (also known as a personal document locator or financial records organizer), which is simply a detailed list of where you have stored your financial records.
This list can be helpful whenever you are trying to locate a specific document and can also assist your loved ones in locating your financial records in the event of an emergency. Typically, a personal data record will include the following information:
- Personal information: Birth, marriage, death records, Social Security card, family history
- Personal contacts: Attorney, banker, tax preparer, financial advisor, insurance agent
- Online accounts: Website, username and passwords
- Financial information: Bank, investment and retirement accounts, tax returns
- Legal information: Durable power of attorneys, health-care directives, Wills
- Funeral and burial plans: Prepayment information, final wishes
- Medical information: Health-care providers, medication, medical history
- Insurance information: Policy numbers, company names
- Business Records: Incorporation papers, trademarks, patents
- Location of financial records and property: Keys to safe or safe-deposit box, vehicle titles, real estate deeds, family heirlooms
Estate Planning for Missouri Families
Do you worry that estate planning will be time-consuming, confusing and expensive?
Advance Directive, Buy-Sell Agreement, Durable Power of Attorney, HIPAA Release, Irrevocable Trust, Living Will, Revocable Trust, Will – these are all different types of tools you may need for your estate plan depending on your personal situation.
And because your family is unique, a one-size-fits-all plan doesn’t work.
But how do you know if a lawyer is experienced in handling your unique needs, how the process will work and how much it will cost?
Do you know what to do after the documents are signed?
And how you keep your estate plan current and up-to-date?
All this confusion might cause you to put off your estate planning because you fear you will make a bad decision or do it wrong. I believe that everyone deserves the peace of mind of knowing that their loved ones will be taken care of and their affairs are in order. This is why I developed the Core Planning Process.
My Core Planning Process eliminates the confusing legal mumbo-jumbo and identifies the essential steps to create an estate plan that can be upgraded or changed over time as your family situation and needs change.