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If your New Year's resolution was to get your finances in order these tips will give you the boost you need to keep your goal on track. Keeping good financial records will help you manage your money and make it grow. Just think of the small amount of discipline you apply to smart record keeping as training for the more demanding (and rewarding) money management tasks like saving and investing.
What to Keep, How Long and Where
Real Estate Documents These likely represent the biggest investment in your life so it is of utmost importance to organize and secure these documents. These include the title to your home, the deed of purchase, your mortgage contract and sales contract. Also keep any receipts for home improvements or repairs you've made. Some of the documents to your home are irreplaceable so they should be sorted and stored in a bank safe-deposit box or a high rated fire-proof safe.
Receipts for valuables Keep all receipts for large purchase including furniture, jewelry, expensive clothing and collectors items. If you don't have receipts for big ticket items, have them appraised and keep the appraisal form. These are imperative to have on hand in case of a fire or burglary. It's also a good idea to keep a visual diary with photos or video and store these with the receipts in a safe place. Any way you can prove ownership in case of a loss will make an insurance claim easier.
Records of Personal Property While you are taking snap shots of heirlooms and valuables, do a secondary visual inventory of the contents of your home. Most people underestimate the value of their possessions. Taking photos or video helps you see what you have an estimate its worth. Keep a written record of your estimates with the photos or video in a safe place.
Warranties Keep all warranty statements covering your appliances, electronics or home systems together with the receipt. Keep a list of the make, model and serial number for all of these items as well. If you have a home warranty, it's better to keep that document with your other real estate documents and a copy in your warranty file.
Old Tax Returns The IRS has three years from your filing date to audit your return if it suspects good faith errors and six years if it finds reason to believe you underreported your income by 25% or more. If audited you'll need to show the documents that substantiate your claims so keep receipts for tax-deductions with your old returns, or at least a copy, for a minimum of six years. Although the IRS has a time limit on audits, it's a good idea to keep tax information forever including audit reports, returns, payments and back-up documents. You don't need to keep pay stubs, toss them when you receive your W2 or 1099.
Insurance Policies Keep all documents for active policies on hand. Create a list of all your insurance from life to liability to home and keep the list in your safe or bank safe-deposit box. It's a good idea to keep a copy of these with your will so the information is available to the executor of your estate.
Wills and Legal Documents If you don't have one you may be leaving a legacy of legal battles. Talk to a lawyer or use a do-it-yourself kit. While you are at it consider creating a living will and power of attorney. If you have a will it should be updated annually or at least when your life or financial situation changes significantly (like having children or buying a home). Keep originals with your lawyer or protected in a safe or bank safe-deposit box. Keep copies in a file at home but only of updated versions to avoid confusion
Credit Card Statements How long you keep credit card statements depends on how you manage your cash. If you only use them occasionally for small purchases like groceries or gifts, keep them for a year or so to have a record of proof of purchases. If you use a credit card to track spending they may serve as proof of payment for utilities, home improvements, rent or other large bills. If so, keep the records for three years and keep all statements where home improvements or large expenditures were paid by the credit card indefinitely.
Bank Statements These have gotten much easier to handle as banks condense cancelled checks onto statements. These documents are as valid as the actual check and can be used to prove payment. Throw out ATM receipts after you've recorded the transaction or when you get your monthly statement. Three years of checking, savings and cancelled checks is plenty, but again be sure to save records for home improvements and large purchases indefinitely. Also take note of statements that record charitable donations and keep these in a separate file with a log of cash donations (church counts!), mileage for traveling to volunteer work and any tax-deductible receipts from donating charitable items like furniture and clothing.
Investment Documents If you receive monthly statements from mutual funds or a brokerage company save these for 12 months. You can toss them when you get your annual statement if it shows all your transactions for the year. You should save your annual statements indefinitely and place any certificates of ownership for stocks, bonds or investments in a safe or bank safe-deposit box. The same goes for retirement account records, save all annual statements from tax-advantaged accounts. Keep investment trade confirmations forever.
Loans Keep all records from student loans, car loans, bank loans and home-equity lines until the debts are paid off. When paid, the lender should send a statement that says so. Just keep this on file and toss the rest.
Medical Expenses Keep a folder at home for all health insurance premiums paid, prescriptions, eyeglasses and contact lenses, and all fees paid to doctors, dentists, therapists and hospitals.
Safe and Sound As you organize your household paperwork and finding safe storage be sure to include these items in the safe or safe-deposit box: the title to your car, birth certificates of you, your spouse and children and marriage certificates.
Records You Can Toss Old, expired insurance policies, receipts for cars you no longer own, pay stubs from earlier years and expired warranties can all be shredded and tossed. If you're not sure about any particular document keep it in the file that makes the most sense to you.
The overall idea is to get your financial records organized and easily accessible. Investing some time to create a secure filing system where your important documents are safe will probably alleviate some anxiety and will definitely make tax time easier. Good record keeping is part financial stability so make it part of your financial strategy by updating and maintaining records throughout the years.
Sources:
Banrate.com
Money.cnn.com
Jean Chatzky “Bills in a Box” http://www.oprah.com/money/jeanchatzky/programs/excuses/jeanchatzky_excuses_begin_c.jhtml
Note:
The information in this article is general advice and not meant as a substitute for guidance from a financial advisor. The author is not responsible for any losses, damages or claims that may result from your financial decisions.
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