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Unless you stay on top of your personal finances, they can easily get away from you. Getting, and keeping, your financial house in order is all about having a plan and staying organized. It doesn’t have to be complicated or difficult, but it does have to be done. Developing a personal financial system will help you maximize the money you have.
Create A Filing System
We all have a great deal of financial information that needs to be sorted, filed and organized every month. Developing a basic filing system can turn this frustrating and time-consuming task into a relatively easy process.
Your financial documents can generally be broken down into three separate categories:
- Documents you need to keep and file away
- Documents that can be shredded and put out with the garbage
When it comes down to it, that’s all there is when it comes to financial paperwork. Either you have a bill to pay, junk to throw away, or a document or receipt you need to keep. You can get more complicated, but the more complicated your system is the less likely you are to stick to it.
Once you’ve decided on your filing system, put every new financial document into its corresponding folder as soon as you get it. Separate folders make finding and keeping track of your documents easier. Go through your folders every month or two and transfer documents you are keeping to a permanent storage area. Get rid of documents you no longer need.
Keep Your Documents Organized
A filing system will help you manage your day-to-day finances, but it’s also important to keep your non-daily or monthly financial documents in order. A small filing cabinet and a couple of folders is all you need to keep these documents organized. Financial documents you should keep include:
- Insurance policies
- Mortgage related documents
- Student loan documents
- Investment and retirement account statements
- Banking and credit card agreements
- Tax returns
- Warranties and/or service contracts
How Long Should You Keep Your Documents On File?
Some documents you’ll be able to discard at the end of the month and others you’ll need to keep for years. But which ones do you keep, and how long do you keep them? Below are some of the most common documents and information on how long you should keep them.
Mortgage-related documents – Buying a home means going through a closing process when you’ll sign what feels like a billion pieces of paper. Before you leave you’ll get a large binder or folder filled with all of the papers you signed at the closing. There will be papers from the bank outlining your loan agreement, appraisal and home inspection information, information relating to your real estate company, and about a hundred other types of documents. It’s possible you’ll never need to refer to any of these, but it’s a good idea to keep them all and to keep them forever. At some point in the future you may need to refer to them for legal reasons or to provide valuable information if you ever sell your home.
Bills and receipts – You should keep utility and credit card bills for 12-24 months. Take the time to go over them and make sure the information is accurate before you discard them — you should be doing this as they come in too. Mistakes do happen and having a copy of your statement on hand will make disputing and settling any errors easier. You don’t need to keep receipts as long. Once you’ve had a chance to compare receipts with your bank and credit card statements you can get rid of them. However, if the receipts have purchases that are eligible for tax write-offs or business expenses you’ll want to keep them for seven years.
Tax Returns – Experts recommend that you keep your tax returns for seven years. The IRS generally has 3-6 years from your filing date to audit your taxes. Keeping seven years of tax returns will make your life much easier when the IRS inevitably decides to audit you. Additionally, having multiple years of tax returns on hand will provide proof of income if you ever need a home loan or another kind of financing.
Bank and investment statements – The internet allows most of us to pull up bank and investment account statements any time we want. Since you can access these records at will, you won’t need to keep every document you get. Even so, you should still review them and identify any errors before discarding them. As a rule, keep these statements until you receive the next one. That gives you time to compare them and check for errors.
You typically receive investment account statements quarterly. Again, keep them at least until you get your next quarterly statement. A better idea is to keep all of your quarterly statements until you receive your end-of-year summary. Once you have that, you can safely toss the old statements into the shredder. Since these documents are easily obtained online or with a phone call, you’ll only to keep your annual statements permanently.
Keeping Your Personal Financial Information From Prying Eyes
Identity theft has become a huge problem around the world. For all the convenience the internet offers us, it also makes it easier for identity thieves to use your personal and financial information. Since they only need tiny bits of your financial and personal information to open bank accounts, lines of credit or to tap into your bank account, it’s important to do everything you can to protect yourself.
The first thing you should do is purchase a paper shredder for at-home use. All of the old bank records, credit card statements, investment documents, utility bills and unused credit offers are easy targets for identity thieves. Shredding these documents before you throw them out minimizes the chance that a thief will be able to steal your information.
Keep financial documents that you don’t discard in a secure location, such as a locked fireproof filing cabinet or lockbox.
It’s also a good idea to create hard-to-guess passwords for any online accounts and to change them at least every year, but every six months would be better.
Taking time to develop a basic filing system today will save you time and frustration later.