New Year, New You: Organizing Your Financial Records
By Laurie Haelen
The New Year is an excellent time to reflect on the many events of the year that has gone by, as well as to consider what changes may improve your daily life.
For me, this usually means some type of reorganization: donating clothing and household items, clearing old files from my computer and one of my favorites, reviewing personal finances.
An integral part of managing your personal finances involves properly maintaining your financial records. This is especially important in the event of a crisis or emergency so that you can quickly locate something if needed. That’s why you should make a point of dusting off the cobwebs that have built up in your home office from time to time and clean out and organize your financial records.
If you — like most of us! — keep paperwork because you “might need it someday,” your home office and file cabinets are likely overflowing and cluttered with nonessential documents. One key to organizing your financial records is to keep only what you absolutely need for as long as you need it.
One of the most common “file hogs” are tax records. Keep all personal tax records for at least three years after filing your return or two years after the taxes were paid, whichever is later. (Different rules apply to business taxes.) If you underreported gross income by more than 25% (not a wise decision), keep the records for six years, and for seven years if you claimed a deduction for worthless securities or bad debt. It might be helpful to keep your actual tax returns, W-2 forms, and other income statements until you begin receiving Social Security benefits.
Financial statements may also be taking up a lot of space. You generally have 60 days to dispute charges with banks and credit cards, so you could discard statements after two months. If you receive an annual statement, get rid of monthly statements once you receive the annual statement. If your statements include tax information (e.g., you use credit card statements to track deductions), follow the guidelines for tax records. I tend to print an annual statement for all investment accounts and keep it indefinitely, as I like to have it for proof in case of any online issues that hopefully will never occur.
You could also follow the same strategy for retirement account statements. Keep quarterly statements until you receive your annual statement; keep annual statements until you close the account. Keep records of nondeductible IRA contributions indefinitely to prove you paid taxes on the funds.
Real estate and investment records should be kept at least until you sell the asset. If the sale is reported on your tax return, follow the rules for tax records. Utility bills can be discarded once the next bill is received showing the previous paid bill, unless you deduct utilities, such as for a home office.
For loan documents: keep documents and proof of payment until the loan is paid off. After that, keep proof of final payment.
For insurance policies: Keep policy and payment documents as long as the policy is in force.
For auto records: Keep registration and title information until the car is sold. If you deduct auto expenses, keep mileage logs and receipts with your tax records. You might keep maintenance records for reference and to document services for a new buyer.
For medical records: Keep records indefinitely for surgeries, major illnesses, lab tests and vaccinations. Keep payment records until you have proof of a zero balance. If you deduct medical expenses, keep receipts with your tax records.
These are general guidelines, and your personal circumstances may warrant keeping these documents for shorter or longer periods of time.
You can choose to keep hard copies of your financial records or store them digitally. You usually do not need to keep hard copies of documents and records that can be found online or duplicated elsewhere. Important documents such as birth certificates and other proof of identity should be stored in a safe place, such as a fire-resistant file cabinet or safe-deposit box. You can save or scan other documents on your computer, or store them on a portable drive, or use a cloud storage service that encrypts your uploaded information and stores it remotely.
An easy way to prevent documents from piling up is to remember the phrase “out with the old, in with the new.” For example, if you still receive paper copies of financial records, discard your old records as soon as you receive the new ones (using the above guidelines). Make sure to dispose of them properly by shredding documents that contain sensitive personal information, Social Security numbers, or financial account numbers. Finally, review your records regularly to make sure that your filing system remains organized. As a person who has cleaned out many homes over the past several years, I can assure you that this process will help you both now and in the future when your loved ones must handle your estate.
Here’s wishing you a wonderful- and organized New Year!
Laurie Haelen, AIF (accredited investment fiduciary), is senior vice president, manager of investment and financial planning solutions, CNB Wealth Management, Canandaigua National Bank & Trust Company. She can be reached at 585-419-0670, ext. 41970 or by email at lhaelen@cnbank.com.