For the financially conscious person, keeping good financial records is an important part of managing the household. It is generally a good practice when you observe some good rules about how and when you should dispose of certain financial records.
How Long Should You Keep Financial Documents?
Knowing which bills and other documents to file away and when to get rid of useless material makes managing your finances much easier. The first step is to know what you have; then you can begin categorizing different documents. Then, once your determine which financial documents you keep, you should consider how long to keep those financial documents.
Which Documents Should You Keep?
Many of the financial documents you accumulate over time fall into a long-term category given their importance and relevance. Still, other financial documents are more ephemeral and may be subject to frequent change-overs, based on continued use or relevance.
Here is a list of some of the more common financial documents you may need to sort through in order to determine how long they should be kept:
- Real estate documents
- Receipts or records of personal property
- Tax returns and related materials
- Insurance policies
- Legal documents
- Credit card statements
- Bank statements
- Investment records
- IRA/Retirement account statements
- Loan statements
- And other assorted documents like marriage license, car title, etc
How Long Should You Keep Them?
Titles and other ownership documents. You should keep all titles and real estate documents,such as a home title, the mortgage contact, property repair receipts, etc., for at least as long as you own the item. You may wish to keep the items longer if it may affect your taxes (for example, selling a home or other property for a profit). The same is true when you record personal property. More and more, insurers suggest taking photos of valuables to help protect your household assets in the event of a fire or theft.
Investments and similar documents. Investment documents such as annual statements, documents that prove cost basis for an investment, IRA/retirement statements, some checks like those used for home improvements, and related documents should be kept for as long as you own the investment.
Legal and personal documents. You should keep legal documents such as birth certificates, marriage certificates, death certificates, divorce certificates, legal documents (wills, powers of attorney, etc) , military discharge paperwork, articles of incorporation or other legal business paperwork, and similar legal documents permanently, or until they are no longer needed (such as creating a revised will or power of attorney).
Taxes. It is a good idea to keep your tax returns and other tax-related documents at least for 6 to 8 years because the IRS can audit you back at least six years.
Bank and credit card statements. You won’t need to keep most other bank statements, canceled checks, or credit card statements for more than a year or so. Be sure to review your statements for discrepancies when you receive them, then file them away for a year or so. With loan statements, you should just keep the statements that note you paid off the balance. It’s alright to dispose of the rest.
Set up a Physical or Digital Filing System
The best way to handle these documents is to set up a simple filing system, with hanging folders, or notebooks so you can easily place these documents into a file for future reference, if needed. Or, if you hare more high tech, set up a simple digital portfolio where you can scan your documents and bills – then be sure to shred anything that you don’t need a physical copy of. (for example, it’s OK to scan your bank and credit card statements and shred the originals, but you should always keep the originals for legal documents such as wills, titles, licenses, etc.).