If you saw my post the other day, you will see that dealing with the paper monster is a big concern for me. Part of that is because paper creates so much of the clutter in my life. So in the first post, we discussed how to reduce the incoming paper in your life to get rid of the unnecessary mess.
The other part of dealing with the paper monster is that you have to be proactive and deal with it in a way that protects your financial health. Understanding what you need to keep and what you need to toss or shred will help you manage your tax deductions, avoid not having documentation if you are audited, and can keep you from having your identity stolen. So here we go!
Part Two: What Needs Kept, What Can Be Tossed, and What Needs Shredded
As I shared before, I am uber-vigilant with protecting my identity. You do need to be careful about what you throw away. The other side of that is understanding what you need to keep and how long you need to keep it.
So first – what do you keep? Now, I am not a financial expert by any means but I pretty much swear by anything that Suze Ormond says. (Note to the FTC – no one at Suze Ormond asked me to say that, I just really like her.) On her website, she has a whole page on “Reducing Financial Clutter” and breaks down exactly what you need to keep, for how long, and why.
For example, you don’t need to keep receipts unless there is tax information on them (aka medical expenses or other deductions) or unless they are tied to a warranty. ATM receipts and deposit slips you only need to keep until you see your monthly statement to ensure everything is represented correctly and then you can throw those out. Pay Stubs you should keep until the end of the year to make sure they match up with your W-2 and Social Security Statement and then those can be tossed as well.
What about if you are using your home as your place of business? (I’m looking at all my peeps with Etsy shops now.) If you claim deductions on your taxes for your home office, you may need to keep your utility bills for three years. Check out the full list at Suze’s website.
As far as tax returns go, this is the only thing that I disagree with Suze on about how long you should keep. Technically, the IRS can audit you for any reason for up to 3 years. If you have omitted income, that extends to 6 years. However, if for some reason the IRS says you didn’t submit a return they can audit you at any time. I would hold onto the basic return and any worksheets indefinitely for just that reason. They aren’t going to take up much space and if it comes down to proving it – you are probably better off to have the basic documentation.
Now that you know what you are going to keep and how long you need to keep it the next question is, when do you need to shred and when can you just toss it? That is pretty simple. Anything that has any type account number and address should be shredded. End of story. Better to be over vigilant than under prepared.
A few more things you can do to protect your identity. Keep all your blank checks, unused credit cards, ID documents and other sensitive information in a safe place. Preferably, some place where you can lock it up. This is especially important if you have people in your house – ever. One of the leading sources of identity theft is friends and family that steal from your house. The other thing that most security experts recommend is that you don’t mail bills from a regular mailbox with the flag up. How easy is it for someone to watch you leave after you put your credit card payment in and walk over and take it? Take it to a USPS mailbox or pay your bills online.
Ok – so we have talked about what to keep and how long to keep it. Now how should you keep it? This really depends on your home and how you organize yourself. I am going to highlight some great products and ideas for creating a home filing system. I have not been compensated in any way to feature these – this is just me finding cool stuff for you.
If you have space for a filing cabinet, that is a great investment. (Remember to get one that locks!) You can actually get attractive filing solutions nowadays – though it is a lot harder to find nice looking locking ones. For example, check out this filing station from Sauder that is available at Meijer for $143.99 (you can also get 4% cashback if you get there via Bing). I like that it would be a great place to store a printer and other office supplies and still provides you with a decent amount of filing space.
If you don’t have space for a filing cabinet, bankers boxes can work in a pinch and store just fine in a closet. Check out this six-pack for $9.99 from Staples. Sure they aren’t pretty, but if you wanted to display them that is nothing some high quality wrapping paper couldn’t fix. Remember though – make sure your personal info is kept safe. I would consider storing these some place where you can lock them up.
Another option are these Rubbermaid Canvas Storage Box with lid for $15.97.
I like to use these hard sided filing boxes to move financial data out of my regular filing system every year to save for archive. This one at Staples is available for $10.39. Typically these end up going into our attic for storage. I know - not under lock and key but pretty hard to just walk over and get into! I like that it has a tab lock to keep everything in it and that it already has pre-labeled tabs.
Now to actually develop a filing system for your documents – you need to develop a system that works for you. Typically – I sort things into different categories of expenses or income. I generally use the same categories that I denote things in my Microsoft Money files. (Yes – I do use that for my personal financial management and I just use whatever comes on my computer! No loyalties here!) You need to work with whatever works for you. My dad likes to file things by month, because he does better thinking about when something happened. However, you think best is how you should set it up. Let’s try a quiz – if I were to ask you to gather up all of your medical expenses from last year how would you think about it. If you think about it as “Oh – I would just look through all my stuff and pull out the medical things” then you are probably a category-based filer. If you think about when you had medical expenses, then you are probably date-based filer. Use whatever system seems to come more naturally to you – the more natural it is, the more likely you will use it.
So what kind of filer do you think you are? Are you a type I didn’t even mention? Lemme know!