Should it stay or go? Clearing out financial paperwork
Spring cleaning — it’s not just for closets and windows.
Paperwork is one of the easiest areas to let a mess build and one of the more challenging categories to tackle. That’s in part because it’s difficult to make a lot of decisions. And the stakes feel higher when it comes to financial documents, said Gretchen Rubin, a happiness expert and author of a new book Outer Order, Inner Calm.
“You want to err on the side of safety so it mounts up and it gets more and more confusing and discouraging as it builds,” she said.
So here’s some expert help on sorting through it all.
KEEP SHORT TERM
It’s okay to hold on to typically tossable items until they prove to be useful, or not.
So while you can generally jettison receipts, hang on to them if they are for a gift or if you might want to return the item. Bills also can go bye-bye once they are paid, but it may be worth keeping them until the next billing cycle to make sure payment was posted.
One big exception is to hang on to these kinds of items a bit longer if you potentially need them to support taxes, insurance claims or warranties.
KEEP MID TERM
There are some items you’ll want to keep for a bit longer, but not forever.
This includes things such as warranties until they expire, the title for your car as long as you own it, documents for active loans and insurance policies until they expire, according to the National Endowment for Financial Education.
Taxes also pose an interesting puzzle. The IRS suggest hanging on to your records for at least three years, because that is how long you have to amend your return and typically the amount of time the IRS has to audit you. However, the IRS says you should keep documents for up to six years if you notably underreported your income and seven years if you file a loss claim from worthless securities or reduction of bad debt. And there’s no statute of limitations for the IRS to take action if you don’t file a return or file a fraudulent one, so if this is your situation, you’ll need those records.
For most folks, NEFE says 7 years is enough.
KEEP LONG TERM
Consider anything associated with a major life event a forever item: birth certificates, death certificates, adoption papers, Social Security cards and proof of marriage or divorce. Other essentials include citizenship documents, proof of military service and passports. There are also your nearly forever items, such as a will or medical directive; replace these when updated.
KEEP IT REAL
It can be tough to decide what should stay or go. If you are unsure, Rubin suggests considering if you could find this information elsewhere. Most bank or retirement account statements, for example, can be found online.
Or try to think through a scenario in which you would actually need it. Can’t think of one? Then it goes.
You don’t need a complicated system to organize things and make sure to keep up with regular purges. And make sure to shred, not throw away or recycle, anything with personal information to avoid identity fraud.
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