Get your financial house in order. Here's how to pare, organize and shred your piles of documents. It's easy, smart and cathartic.
Spring, with new life popping up everywhere, is the source of many an impulse to start afresh. Spring cleaning is a longstanding tradition. Why not adapt it to the mess of files and financial records — paper and virtual — that pile up in our lives?
Here’s how to get going:
1. Set a goal
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A project like spring cleaning can eat you alive, unless you set some limits. Choose a manageable task and stick to that one job. You can always return to do more next week or next year. Here are a few ideas to get you thinking:
- Clear out two years’ worth of old tax documents.
- Sort through one or two boxes of old papers or file cabinet drawers.
- Clean out the closet that’s stuffed with old papers.
2. Know how long to keep paperwork
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Don’t get carried away and toss absolutely everything. Here’s what to keep, and for how long:
Copies of your tax returns: Keep these forever. “They help in preparing future tax returns and making computations if you file an amended return,” the IRS says. Also, old tax returns offer proof, should you ever need it, that you filed taxes in those years.
Supporting tax documents and receipts: The IRS recommends that you keep supporting documents for as long as you can be audited or held responsible for the filings. Here are a few rules of thumb:
- The IRS says that it generally audits taxes back three years, although it could look back as far as six years or even further if it finds a “substantial error,” so keep records supporting deductions for six years after the return was due or filed.
- Keep payroll tax records for six years.
- If you failed to report income worth more than 25 percent of the gross amount you reported, you’re liable to the IRS for six years.
Documents to support an insurance claim: To help substantiate a claim should you ever need to make one, ask your home-, rental- or auto-insurance companies or agents which documents you should keep and how long to hold them.
3. Discard papers if you have stored electronic copies
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Before tossing documents, check with banks and financial services companies, including your 401(k) provider, to learn how long they retain electronic copies of your records.
4. Back up
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Download electronic copies of bank and insurance records and other important documents to your computer and back them up onto a separate hard drive or cloud storage. Do this annually (a good time to do it is when you are preparing your tax return), as banks, credit card companies and other businesses tend to cut off electronic access after a year or 18 months.
5. Back up your backups
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It’s smart to have backups for your backups. Use a second hard drive or buy a subscription to an always-on backup service that constantly copies your entire computer’s contents to a secure cloud storage for a minimal fee.
For more on backups and paring back files on your personal devices, read 5 Steps to Spring Clean Your Tech.
6. Decide: Toss or keep?
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Toss instruction manuals for things you no longer own, utility bills, receipts, reconciled bank statements, canceled checks, old newspapers and correspondence unless it’s really precious.
After refinancing your mortgage you can get rid of most of the paperwork. However, keep one entire set of closing documents from your last refinance. Otherwise, “you only need to keep the closing summary that documents your costs and the paid-in-full letter from the old mortgage,” says Consumer Reports.
7. Buy a scanner and use it daily
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Get into the practice of scanning and then shredding documents you want to retain. Organize your computer files so you can easily drop them into the right folders. The Wirecutter, which tested and reviewed portable document scanners, put the Epson Workforce ES-300W at the top of its rankings.
8. Don’t toss it, shred it
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Don’t risk identity theft by throwing personal documents into the trash.
If you don’t have a shredder, or if yours isn’t powerful, safe or easy to use, buy a new crosscut (for best security) shredder. (The Wirecutter reviews shredders here.) Few people are willing to shred years’ worth of documents at home. But if you are one of them, give your shredder frequent rests to prevent overheating and oil the cutting mechanism often or use shredder lubrication sheets. Read the manufacturer’s instructions before testing your shredder’s limits.
9. Consider a shredding service
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If you’ve got lots to shred, find a service you trust. Call first to learn if you can watch (for your own security) as the shredding is done and whether you can take the shredded paper home if you wish.
Here are some options, with links to each company’s shredding services:
- Records management warehouse companies: You bring documents to their facility.
- Mobile shredding services: They come to your home with a truck and shred on site. (Maybe best for watching the work being done).
- Retail office supply stores: FedEx and UPS stores are two examples. You bring documents to the store (not drop-off depots) for shredding.
- Office supply box stores: Office Max, Staples and Office Depot, are a few examples.
When using a shredding service, keep an eye out for sales, coupons and promo codes — often for as much as half off.
10. Make an insurance inventory
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Renters and homeowners alike benefit from creating an inventory of possessions. Technology makes the job fairly simple:
- Use your smartphone (or borrow your friend’s or your kid’s) to photograph every possession in your home for which you’d want to make an insurance claim if it was stolen or damaged. Even simpler, take a video, walking through the home as you point out items and describe their value.
- Document room by room. Include the home itself, inside and out, vehicles, car accessories and interior furnishings, sports equipment, outdoor furniture, toys and structures.
- Record the rough amount you paid for each item and, if possible, when you purchased it. Write it on the back of each photo or connect the information with the photos on your computer.
- Starting now, photograph new possessions as you obtain them. Save their receipts with your inventory.
- The Insurance Information Institute has a free mobile app and desk software for this purpose.
- This article from the III tells how to conduct an inventory.
- Ask your insurer for tips. Some companies recommend their own software.
11. Scrutinize your bank accounts
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Take a yearly look at your bank accounts. If you have too many, close the inactive ones. Shred unused checks and registers from old accounts.
12. Shop for new bank accounts
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There’s no excuse for paying fees when you can find free checking. NerdWallet tells where to find fee-free checking.
13. Make a new habit
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Here’s a simple daily routine that prevents mail from piling up. You’ll need:
- A letter opener or serrated butter knife
- A basket for paper recycling
- A shredder
- A box or bag near your shredder for papers to be shredded
When you’ve picked up your mail from the mailbox, go directly to a table or counter and slice open each envelope, separating the material into three piles:
- Bills and documents to pay, act on or file.
- Papers to shred (anything containing your name, address, account number or other identifying information). Some experts advise shredding anything that has writing on it.
- Papers with no identifying information (to recycle)
Toss the recyclables into their basket, shred paid bills and papers with identifying information or put them next to the shredder. Act on the items in the remaining pile.
Do you have a spring cleaning ritual you can recommend for more security and less clutter? Share it at our Facebook page.