When Is It Safe To Toss Financial Documents?
Early in my career, I would work one-on-one with individuals by going into their home and actually organizing their financial documents. It never failed that in every home I would find mounds and mounds of financial documents stacked up or tucked away that had been there so long the ink had faded rendering whatever it started out as useless. I also spent hours sifting through bank statements and utility bills from 1996 that no one would ever need again for any reason! Lucky for me, I was paid by the hour. Lucky for you, I can now tell you just what you need and for how long you actually need it!
If you’re like me and prefer to have things on hand longer, then scan* the documents before you shred them. Save the scanned images in organized folders on your computer, but remember to back it up often.
If you opt for paperless or e-billing and receive your statements in your e-mail box, you can simply save each statement as a PDF. It saves time, paper, and energy, but it can still become cluttered after a certain point even in “the cloud” or on your hard drive. So I say you can use this as an online clean-up assignment, as well. (Update: My husband and I recently agreed to make our household paperless since we’re bi-coastal and travel quite extensively. I just signed up for Evernote Premium to help make scanning, organizing and retrieving documents more efficient. Wish me luck! If you’re on the mailing list, I’ll share my results this Fall.)
Here are some timeframes for keeping financial records.
KEEP FOR A YEAR OR LESS:
- Monthly Utilities – Review for accuracy, but there’s no need to keep them for more than a quarter at the most.
- Credit Card Bills – Review for any billing errors, and keep for no more than six months.
- Paycheck Stubs – You should always have at least your last three pay stubs.You never know when you’ll need to prove income for a loan or some other necessity. Keep the last few in the year to compare against your W-2 or 1099. If they don’t match, go to your employer and request a correction. Otherwise, you can shred them. Your W-2 is sufficient for filing taxes.
- Insurance Policies – Always keep the most recent policy. Old ones don’t matter once a new one takes effect.
KEEP FOR TWO YEARS:
• Bank Statements – Review when you receive them. Look for unauthorized purchases, and keep up to twenty-four months of statements on hand (or scanned). Yes, you can request them from the bank, but it typically costs a fee and you’ll have to wait longer than you might need to. For the self-employed, this is particularly important. In some instances, the absence of a regular W-2 and paycheck stubs means you’ll need to prove your income by using bank statements.
KEEP FOR SEVEN YEARS:
• Tax Documents – I know seven years seems like forever, but so will an IRS audit, if you don’t have your tax returns in order. If you think you’re due a larger refund, you have three years to file an amended return, and the IRS has three years to audit you, if they think you made a mistake. The IRS has six years to audit you when they think you underreported income, and there’s no time limit when they believe you blatantly filed a fraudulent return.
If you’ve lost old tax returns and would feel better if you had a copy, contact your tax preparer, and if all else fails, request a copy of past tax returns from the IRS. You can get a tax return transcript for free in about two weeks by calling 1-800-829-1040.
KEEP FOREVER OR INDEFINITELY:
- Loan Documents – Keep these for the life of the loan, and destroy hem once you’ve paid them off and have a title or other final document proving payment in full.
- Receipts – Keep anything documenting a major purchase, like jewelry or a computer. You never know when it might come in handy.
- Long-term insurance policies or investment accounts – Keep these documents until maturation of the investment.
- Brokerage Statements – If you’ve already begun investing, you’ll get monthly statements telling you how much you’ve made each month. Keep brokerage statements until you receive the annual statement at the end of each year. Keep annual statements until you sell the investment. You’ll use the statements to prove your capital gains or losses when you file taxes.
Whew! . . . Doesn’t it help to have this all laid out for you?
To take the help up a notch, I created this great printable as my gift and reminder to you so you can get your finances organized this Spring! It’s apart of my Get It Together Challenge this Spring. Click the green button to sign up below and get this and a bunch more!
Happy Spring Cleaning!
***NOTE: I may get a small Thank You commission if you use one or more of the links in this post for spreading the good news. By now, however, I hope you know me well enough to know that 1. I wouldn’t share anything with you that I didn’t use and/or believe in wholeheartedly. And, 2. I couldn’t be a good example to you on Earning More Money if I didn’t find small ways to monetize work that’s helping thousands of women and families for 100% FREE.