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If you are like most people, you have mounds of receipts and papers sitting on a desk or overflowing in a shoebox. Having an organized system for your financial records will save you and your family time and aggravation in the future.
If the shoebox organization system is not working for you, then the time has come to dump out the box full of papers and receipts and create an organized financial system. While this dreaded process might take several hours or days, once it's done, the sense of satisfaction you will feel will make it all worthwhile.
The papers in your shoebox will vary by importance, ability to replace, and need for accessibility, and, therefore, should be stored accordingly. The following list outlines some of your record storage options:
Now that you know the types of storage available for your records, lets discuss what you need to keep and where you should keep it. The categories we will explore include personal papers, insurance policies, tax returns and receipts, paycheck stubs, bank records, monthly credit card statements, receipts, appliance instructions and warranties, retirement plans, investments, real estate documents, debts, money owed to you, and other important documents.
Most personal papers are important to keep and inconvenient to replace, and should be kept in a safe deposit box or a fireproof safe. Examples of personal papers are:
Insurance policies are replaceable by the insurance company, but you should still keep your current version in a safe deposit box or fireproof safe. Keep a copy in your file cabinet in case you need to review the policy or file a claim, along with any correspondence you have had with the insurance company or claims you have filed. Examples of insurance policies include:
Tax Returns and Receipts
While it is a good idea to keep all tax returns to maintain a record of your financial situation, you only need to keep returns and supporting documentation for the past three years to satisfy the IRS in the event of an audit. The statute of limitations for the IRS to investigate your return is three years, but if you underreported your income by more than 25 percent, the IRS has up to six years to audit you. Additionally, if the IRS suspects fraud, there is no time limit in which they can audit you. Keep tax returns and all supporting documentation from the past three years in your file cabinet. If you have underreported your income, or choose to keep all of your returns, store them in a box in the attic, otherwise, add them to the circular file.
It is always a good idea to keep your pay stubs to compare to your W-2 at the end of the year. Additionally, pay stubs provide a record of hours worked, overtime, and bonuses. After you have determined your salary on your W-2 to be correct, you can throw your pay stubs away and file your W-2 with your tax records. Don't forget, charitable contributions taken directly from your pay are not reported on your W-2; therefore, you must keep your pay stubs to file the deduction on your tax return. If you are self-employed, you should keep all of your pay stubs to ensure that your earnings are correctly reported on all of the W-2s you receive, and you may need them for documentation when you file your 1099.
The most common bank records include cancelled checks and monthly statements. You only need to keep cancelled checks as supporting documentation for tax returns for three years, but there are many other reasons why you might want to hang onto them as well as your statements:
Cancelled checks for the past three years can be stored in your file cabinet. If you choose to keep them after that time, store them in a box in your attic; otherwise, add them to the circular file.
Other bank records include loans and certificates of deposit. Store the original documentation in your safe deposit box or fireproof safe. Keep the most current statements in your file cabinet and add the outdated ones to the circular file. When you make deposits or payments, keep the record until you receive your statement to ensure accuracy. Save any correspondence from the bank regarding fees or interest rate changes, in case you question your account in the future. Also, it is wise to keep a record of your PIN number in case you forget it. When the loan is paid off or the account is closed, you can throw the contents of the file away. For more information about how long to keep financial records, see the Bankrate.com article, What Financial Records to Keep .
Monthly Credit Card Statements
In order to ensure that you are not double charged for an item, you may want to retain your credit card statements for two years. If you purchase an expensive item, you may want to save that particular statement in case you need proof of purchase for an insurance claim. Otherwise, after two years, if you do not wish to retain the statements for your records, you can add them to the circular file, but be sure to destroy them to prevent theft of your credit card number.
These days, you receive receipts for almost everything you purchase, but it is not necessary to keep all of them:
Appliance Instructions and Warranties
Mark the serial number and the date you purchased the item on the appropriate booklet and store in your file cabinet. Throw the warranty documents away upon expiration.
Medical and Drug Bills
You should retain all medical and drug bills if you are in a dispute with your insurance company until the disagreement is resolved. It is also wise to keep medical and drug bills in your file cabinet for a year, in the event of a medical emergency in which the expenses may exceed 7.5% of your income. In that case, you can take a deduction on your tax form. For more information about tax deductions, see IRS Publication 502 about medical and dental expenses.
For each of your retirement accounts, keep the account numbers, company names, and phone numbers in your safe deposit box or fireproof safe. In your file cabinet, keep all annual statements and plan documents. If you have taken a loan against any plan, keep a record of that in your file cabinet. Also, if you make a withdrawal from an account, keep the record until you receive your statement, then it can be thrown away.
Real Estate Documents
When you acquire real estate, you should keep all of the papers that you receive during closing. The following list provides some insight into the more important documents that should be kept in your safe deposit box or fireproof safe:
Other important documents, which you can keep in your file cabinet, include the current tax assessment on your property and your homeowner's association agreement.
It is wise to keep your mortgage contract in your safe deposit box or fireproof safe, but you may want to retain a copy in your file cabinet. With that, you should keep a record of any loans you may have, including student, car, and home equity loans. When the loan is paid off, you can throw the documentation away, retaining only the final statement that shows the loan paid in full. The titles to your cars should be kept in your safe deposit box or fireproof safe.
Money Owed to You
Other Important Documents
So, what does your organization system look like? With so many important papers to keep track of, you may want to get started right away with some of the tips and ideas in this article. Creating an effective system for organizing them will simplify your life. And, knowing the right place to store your documents is just as important. While the task may seem daunting, the benefits you reap will far outweigh the time spent doing it.
For an easy to read table about what records to keep and where to keep them, see the Extension.org article, Organize Your Important Papers. For more information on budgeting and help getting out of debt, search the CareOne Credit Knowledge Center Articles.
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