How to Keep Your Records From Keeping You

A Message from Kimberly Clouse, Financial Expert:

kim_clouse I have worked in the financial services industry for nearly a decade in many capacities, most recently as a financial adviser for individuals. Over the course of my career, I have had the privilege of working with a diverse range of people, from the single mother just starting her own business to the billionaire. Based upon my experiences, I have learned that the same basic principles and lessons apply to a successful and healthy financial life, whether you’re starting out or cashing out. These guiding principles include simplicity, a long-term perspective, and above all, knowing that you have control of your financial destiny, and all the information you need is well within your reach.


How to Keep Your Records From Keeping You

On more than one occasion when I was a financial adviser, new clients would introduce their financial situation to me by presenting me with boxes of paper (records, receipts, statements, etc.)! Obviously, many of my clients believed that it was necessary to keep absolutely everything relating to their financial matters. One of the first things we reviewed was what they needed to keep and for how long. It was amazing to see how much more in control of their finances–and how much less stressed–clients felt after getting an education on financial housecleaning.

Most financial papers fit into 3 categories: (1) Those that can be thrown away monthly; (2) Those that can be thrown away annually; and (3) Those that should be saved indefinitely.

What You Can Throw Away Monthly

  • ATM and deposit receipts. After you’ve recorded ATM withdrawal amounts into your checkbook or online record-keeping program and reconciled the information with your monthly bank statement, throw away those pesky scraps of paper. Ditto with deposit slips.
  • Receipts for small ticket purchases. Don’t keep sales receipts for small purchases that you can’t return, particularly if you’ve satisfactorily used the item or the warranty has expired. However be sure to keep receipts for major purchases, such as appliances, if the purchase price/replacement cost exceeds your homeowners’ or renters’ insurance deductible. You may need to present copies of these receipts in order to get reimbursed from your insurance company in the event of loss or theft.
  • Credit card receipts. In general, after you have confirmed that the amounts on your monthly statement match your receipts, toss the receipts. Exceptions occur when you need those receipts for tax purposes, such as tracking business-related entertainment and meals.

What You Can Discard Annually

  • Monthly statements. At the end of the year, you will get annual statements from your bank, mortgage company, brokerage or mutual fund company, and in some cases, your credit card company. Check these annual statements against your monthly statements, and if they are correct, discard the monthly statements. However, if you itemize your deductions, keep your monthly bank and credit card statements with your tax information.
  • Paycheck stubs. Shortly after the first of the calendar year, your employer will send you items that you need to calculate your taxes, such as W-2 or 1099 forms. Reconcile the annual amounts against the monthly amounts for accuracy, then file your paycheck stubs in your circular recycle bin (i.e. garbage can).

What You Should Save Indefinitely

  • Tax returns and supporting documents. The IRS can audit your taxes for up to 7 years after you have filed them, so you should keep your tax returns and supporting documentation at least that long.1 In addition to your actual return, keep items including canceled checks and receipts for all deductible business expenses (such as for professional dues), retirement account contributions, charitable donations, out-of-pocket medical expenses, alimony, mortgage interest and property tax payments. While you are required to keep this tax information only as long as your audit window is open, this information–as well as year-end summaries of investment accounts–can be very helpful in long-term financial planning and should therefore be kept indefinitely.
  • Warranties and receipts for all major purchases. File warranties according to the year in which they expire, so you can easily keep track of when warranties become worthless. You may need receipts for insurance purposes if you experience fire, flood or other emergency.
  • Receipts pertaining to home improvements. These receipts are necessary when computing the capital gains on the sale of your home and can be useful in working with potential buyers.
  • Documents related to passing investments to your heirs or other beneficiaries, including retirement plan beneficiary designations. When your beneficiaries eventually sell these investments, they will need to know what you paid for them. Furthermore, the job of settling your estate will be much easier for those you leave behind if you keep these documents.
  • Your passport and will, and the deed for your home and any other property owned. Keep these documents–along with your birth and marriage certificates and any insurance policies–in a safe, accessible place so that you and your heirs will be able to access them quickly.

1The IRS has up to 3 years from the date you file your tax return to examine it for errors; if for any reason you are suspected to have underreported your gross income by 25% or more, the IRS has as long as 6 years to conduct an audit. No statute of limitations exists for anyone who has deliberately committed fraud.

This column is designed to provide accurate and authoritative information on the subject of personal finances. It is provided with the understanding that the Author is not engaged in rendering legal, accounting, or other professional services by publishing this column. As each individual situation is unique, questions relevant to personal finances and specific to the individual should be addressed to an appropriate professional to ensure that the situation has been evaluated carefully and appropriately. The Author specifically disclaims any liability, loss or risk which is incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this work.