How Should You Be Organizing Your Important Documents?

One of the best ways to organize your records is to divide your financial papers into four chronological categories:

In this file you should store your bank-deposit, ATM, and credit card receipts until you coordinate them with your monthly statements. Once that is complete, shred the paper documents or securely trash electronic files unless you need them for your tax return. Keep investment statements and insurance policies until new ones arrive.

One Year or Longer

You should on to loan documents until the loan is paid off, which will often be for more than a year. If you have investments in stocks, bonds, and/or mutual funds, for example, keep the purchase confirmations until you sell so that you can establish your cost basis and holding period. Additionally if you own a car, hold on to the title until you sell it.

Seven Years

If you fail to report all of your gross income on your tax returns, the government has six years to collect the tax or start legal proceedings. To be on the safe side, you should keep all tax records for at least seven years.

Forever

Records such as birth and death certificates, Social Security cards, marriage licenses, divorce decrees, and military discharge papers should be kept indefinitely. Also, be sure to hold on to any defined-benefit plan documents, life insurance policies, estate planning documents, and an inventory of what’s inside your bank safe deposit box.

How You Should Be Storing Your Files

There are a multitude of ways to effectively store important documents. It’s a good idea to use a fireproof safe or password-protected electronic file for documents such as bank and investment statements, tax documents, estate-planning documents, pay stubs, and pension information.

You may also want to invest in a safe deposit box for papers that can’t be easily replaced. These include original birth and death certificates, Social Security cards, marriage and divorce decrees, passports, and life insurance documents.

As an extra layer of security, you can scan your documents onto your computer (make sure they are clear copies). You should also back them up to a cloud service like Google Drive or Dropbox. To protect your data, make sure the storage provider uses encryption technology. You can also store copies of your files in folders on a password-protected external hard drive.

Why These Documents Are Important to Keep

While it is natural to focus on just your tax papers, it’s beneficial to organize all your financial documents.

For instance, you may need taxes and brokerage financial statements from previous years if you’re meeting with a financial advisor. If your home is hit by a fire or flood, or robbed/damaged by a thief, you may need quick access to your insurance papers. If you become ill, your loved ones may need to find papers that prove they can look after you, such as your healthcare proxy or durable power of attorney.

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