Your emailed receipts are saved on your computer. The bank statements you get by mail are haphazardly tossed into a desk drawer. Your car insurance policy is buried somewhere in a box. Sound familiar?
If so, it may be time to spiff up your financial records organization system just a bit. The good news: “A bit” may be all you need to do, says financial coach Kelsa Dickey, owner of Arizona-based Fiscal Fitness Phoenix.
According to Dickey, your organization system can actually be simple and take up very little room or time. Case in point: She stores all of her important family financial records in a two-drawer filing cabinet and on her computer. Here are the simple steps she suggests for getting your important financial files in order.
Dickey suggests keeping a stand-up file holder near where you sort your mail (in your kitchen or home office, for instance.) Her own system consists of three files for incoming paper: Shred, File and Action. Junk mail is recycled immediately. Important financial and other mail is more easily processed when it’s already sorted into her three files.
It’s fine to have a two-part financial system that includes both paper and electronic copies, says Dickey. If a receipt or statement comes to you on paper (your updated insurance policy declarations page, for instance), just keep the paper copy—don’t bother scanning it, she says. If a receipt comes to you by email, simply create a “Receipts” folder in your email program or on your computer and store the item there. Don’t print it, suggests Dickey.
First, a caveat: If you run a business, you should keep all of your receipts, even if you’ve purchased a service or product by credit card. If you’re asked by the Internal Revenue Service (IRS) to verify a business purchase, your credit-card statement won’t be enough, says Dickey.
However, you only need to keep routine, personal receipts until you’ve checked them against your bank or credit card statement. After that, Dickey recommends tossing them—or shredding them if they contain personalized information. She suggests only keeping receipts for large purchases you may need later—for example, to support tax deductions, or for returns or warranty service.
A single paper or electronic folder is all you really need for each year’s receipts. No need to separate them out by “Appliances,” Furniture” or any other identifiers. If you need to find a key receipt, you’ll only have a handful to sort through each year. “Also, you’re more likely to keep up with a super-simple system like this one,” she says.
In a few cases, you may need to keep receipts a bit longer and give them their own paper or electronic file, says Dickey. For instance, if you have a medical or dependent care flexible spending account (FSA), Dickey says you may want to keep all medical care or child care receipts for a year in case you’re asked to resubmit them. You’ll also want to keep your tax returns and backup documents for at least three years, suggests the IRS.
Because you can easily access bank and credit card statements online if you need them, Dickey doesn’t suggest keeping or printing them after you’ve checked your account for errors. For insurance policies or other important accounts, keep a copy of only the most current statement, she advises. Keep quarterly retirement or investment account statements until the year is over, then keep only each year-end statement, suggests Consumer Reports.
Dickey suggests keeping a simple list of where to find all of your financial and insurance accounts (not necessarily the account numbers) in a “legacy file” stored in a fireproof home safe or safety deposit box. Wills, trust papers, and insurance policies are best kept in the safe, too, in case your computer or paper files are damaged. Be sure to give a trusted family member or professional the access code or key in case something happens to you.
Dickey advises that you keep key documents like the title to your car or deed to your paid-off house in your safe deposit box or fireproof safe until you sell. If you ever agree to a settlement with a creditor or go through bankruptcy, keep those files for the rest of your life. “You never know when someone might make a mistake or come back to you on those financial issues,” she says.