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 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, such as Tax returns, Legal contracts, Insurance claims,
and 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.
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.
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.
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.
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.
Another option for organizing your financial records is to create
a personal document locator, 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.
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