Organizing and processing your financial information in a systematic way is one of the easiest things you can do to help keep your financial house in order. This step will greatly contribute to maintaining the stability of your financial affairs.
Creating a Simple Basic Filing System
There is a lot of financial information to organize and process, and a simple filing system can make this task less daunting. You can easily divide all your financial papers into the following categories:
- Outstanding bills
- Important documents to keep
- Items to discard or shred
It’s that simple. You either have a bill that needs to be paid, a receipt or document that needs to be kept, or something that can be thrown away. You can organize these items any way you see fit, but it can be as simple as using three individual labeled folders with the above-mentioned categories.
Then, each time you receive mail or another financial document, take a moment to place it in the correct folder. This way, your bills and important documents will be in one easy-to-access location. You can process the folders regularly, store important documents permanently, and discard what you don’t need.
Keeping Important Documents Organized
While a basic filing system will do a good job at keeping your daily financial affairs in order, you’ll also want to organize the important items you need to keep. Generally, you can use a small file cabinet with individual folders to keep everything organized. Here are some examples of financial documents you should keep:
- Tax returns
- Insurance documents
- Mortgage documents
- Investment and retirement account statements
- Warranties or service contracts
How Long to Keep Documents
Since you need to keep copies of certain documents, how long should you hold onto them? In some cases, you may only need to keep a document or form for a short time, while you may want to keep others for years. Here are some common financial documents and the amount of time you should consider keeping them:
- Tax returns: It is recommended to keep them for seven years. If the IRS wants to review your returns, they usually have between 3 to 6 years to go back to the dates when you filed. Keeping seven years’ worth of past returns will protect you and make your life easier if you are ever audited. Not only that, but if you’re planning to buy a home or need to prove income for a lender, it’s good to have a few years’ worth of data on hand.
- Mortgage documents: When you buy a house, you will sit and sign your name on what seems to be hundreds of pages. You will typically receive a large folder containing copies of everything discussed at closing. These documents will include information from the bank outlining the loan, information from the real estate company, appraisal and inspection information, and much more. Although you may not need to refer back to these things frequently, you should keep these documents indefinitely. You may need to refer back to them in the future, and they can provide valuable information when you eventually sell the home.
- Bank and investment statements: If there’s one good thing about the internet, it’s that you can often access electronic copies of bank and investment statements at any time. This eliminates the need to keep every detailed statement you receive. However, it’s good to review each detailed statement you get, and if it’s quarterly, keep it until the next statement arrives. Once you receive the annual or yearly statement, you can safely dispose of all monthly or quarterly data. This will reduce the number of papers you have to store, and you’re likely to be able to obtain additional copies online or with a quick phone call.
- Bills
- IRS. “IRS Audits.”
- IRS. “How Long Should I Keep Records?”
- IRS. “IRS Audits.”
- IRS. “How Long Should I Keep Records?”
- IRS. “IRS Audits.”
- IRS. “How Long Should I Keep Records?”
Receipts:
When you receive utility bills and credit card statements, it’s a good idea to keep them for a year after verifying the information. Mistakes can happen, and having a copy of your statement readily available can help you in case of an error. The same applies to receipts. You should keep them long enough to compare them with your account statements so you can spot any mistakes. Of course, unless the receipts are for purchases that can be used for tax purposes. In that case, they should be kept for up to seven years, just like tax returns in case of an audit.
Keeping Your Information Secure
Identity theft has become a big problem in recent years. Scammers can take parts of your personal and financial history and use it to create fake identities that can ruin your credit score, drain your bank accounts, and cause you a lot of headaches. Therefore, it is important to protect and properly dispose of your financial data.
First and foremost, consider buying a shredder for your home. All those old utility bills and even credit card offers that you receive in the mail each month can be a major target for scammers. By shredding unused documents, you can ensure that you’ve minimized the chances of your information being stolen.
You should also protect the documents you keep at home. If you’re storing everything in cardboard boxes in the basement, what happens if there’s a flood? You could lose years of data. The same applies if there’s a fire or other disaster.
While you can’t protect yourself from every possibility, you can at least get a strong, durable, and perhaps even fire-resistant filing cabinet to keep your documents relatively safe and away from the wrong hands. You don’t need to overprotect, but you also don’t want everything just sitting in a few old boxes in your closet.
Organization Can Help Your Heirs Too
If something happens to you, organized financial documents can greatly assist the people who will take care of your affairs after you’re gone. It can make settling your estate easier. If you have a will, it’s also essential to have a guiding letter so the executor knows where to find these documents.
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Source: https://www.thebalancemoney.com/getting-your-financial-house-in-order-1289794
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