Drowning in Financial Paperwork? 7 Tips for Digging Yourself Out

Drowning in Financial Paperwork? 7 Tips for Digging Yourself Out

According to Consumer Reports, less than half of all Americans can get their hands on important financial documents immediately, and this includes folks who swear they’re highly organized.  Women are more likely to stay on top of paperwork than men.  Over 65? You belong to Gen A; the accountable generation of people who actually enjoy organizing financial records. No matter the group to which you belong, it’s time to make a change, which is why you can undertake a paper purge using the research in this article. 

The Tax Man Cometh

Your annual tax returns are sacrosanct. Keep them forever! Supporting documents proving that you paid off medical bills or job search expenses can be tossed after three years. Why three years? The IRS must audit returns within that time span, so if they don’t scare you by then, you’re not expected to provide more than the most recent three years’ worth of backup. There’s one exception. Suppose you fail to report more than 25-percent of your gross income when you file your tax returns? You could face fraud charges after an audit requiring up to six years-worth of backup.  Lesson learned? Keep more than three years’ worth of backup if you haven’t been good.

Invest in Your Sanity

Everyone gets them - the monthly statements you receive when your broker makes a trade, a mutual fund pays a dividend or changes are made to your IRA or retirement accounts. Keep those monthly statements until the final one - recapping all transactions throughout the year. Check the summary against your monthly statements. If all is kosher, dump the monthly paperwork with one exception. Hang on to original investment transaction records so you can calculate gains and losses down the road when you liquidate assets.

Home on the Range

Do you still have every document associated with every residence you’ve bought and sold during your lifetime? Is it excessive? Yup, and unnecessary. You can toss everything but the paperwork related to your current abode so you can show potential buyers how much you’ve invested in remodeling and making home improvements over the years. Once you sell, and if you make a profit, your accountant may be able to find tax breaks buried in the paperwork, so retain everything for three years after you sell - just in case.

Account for Yourself

Store a red box, but with no DVDs inside. Your red file box has everything anyone needs to know about when and where you bought your fridge, who installed your microwave, where the floor tile for your personal bath was purchased and other documents substantiating improvements and construction projects associated with the property. Keep anything that might be of interest to someone buying your home, but routinely purge expired warranties. This red box is your gift to whomever buys your place.

Never Throw These Out

Your will, powers of attorney, trusts, endowments and other life-impacting documentation should be kept forever or until you replace them. This goes for life insurance policies, employer-benefit plans, birth and death certificates, marriage licenses and divorce decrees, military discharge papers and Social Security cards. You might consider leaving your will on the kitchen counter when you leave town so your kids can get their hands on it immediately should things take a bad turn when, for example, you’re skydiving over Maui.

Don‘t be a Dead Head

Financial professionals have a name for items kept on hand long after they serve no purpose other than dust collection - Dead Documents. But for the uber-paranoid worrier intent on keeping those bankers boxes filled with paper no matter what, you can have your cake and eat it too. Grab your dead files, set up an Excel or another accounting software file dedicated exclusively to your financial mortuary on your computer and load it up with your ancient history.