Tips for Spring Cleaning Financial Records
Need to spring clean your financial records? Here’s where to start.
Recycle, Shred, or Save?
To get started, grab three containers to sort your papers into the following three piles:
1. Recycling Bin or Trash Can
Many papers can just be tossed out right away—they should not have any personal information on them—only your name and address.
2. Papers with Personally Identifiable Information
Personally identifiable information is any information that can be used to verify your identity—this would be account numbers, birthdays, email addresses, etc. Some examples of paper that contain this information, but that could be shredded after the appropriate retention time frame has passed include:
Bank statements, ATM receipts, canceled checks
Credit card statements, receipts, new card offers
Paystubs
Utility bills
Investment account confirmations, statements, communications
Medical and dental records, explanations of benefits
These papers should all be shredded after the appropriate time window to hang onto them has passed.
3. Papers You’ll Save for Filing
This should be your smallest stack!
This handy chart should help you decide what needs to be kept and what can be safely tossed:
When to Shred: How Long to Keep Records
Shred After 1 Week
Pay Stubs: Keep only the most recent pay stub, as each contains the history of previous stubs. Exception: If applying for a mortgage, retain a few months’ worth.
ATM Receipts: Keep until you’ve balanced your bank statement, then shred.
Shred After 3 Months
Bank Statements: Retain for three months, especially if considering a mortgage application. Otherwise, banks maintain your records.
Utility Bills: Keep the last three months if not used for tax purposes.
Credit Card Statements: Maintain three months of statements.
Investment Documents: Retain three months of balance statements. Keep purchase records until the investment is sold and taxes are filed for that year.
Shred After 5 Years
Medical Insurance: Keep premium statements, doctor bills, prescriptions, and hospital bills for five years from the date of service.
Home Insurance: Retain longer if there are pending claims or plans to file a claim for a past period.
Shred After 7 Years
Tax Returns: The IRS can audit for errors greater than 25% for up to six years, so keep returns for seven years.
Shred After 10 Years
Home Repairs: Keep records for ten years to support workmanship guarantees. For renovations, obtain and retain satisfaction of lien documents from contractors.
Shred After 10+ Years
Mortgage Documents: Retain loan information for the duration of the mortgage. After payoff, keep the satisfaction of mortgage document as long as you own the home.
With your containers and list of things to keep nearby, you are ready to get started. To avoid feeling overwhelmed by stacks of papers, it’s best to break the task into short sessions. Set a timer for 10 minutes—or break the giant stack into several smaller stacks.
Tips for Getting Through the Spring Clean
Start working through your piles of papers, one piece at a time, using the rules listed above: throw away trash, shred anything that is not needed with personal information on it, and keep important papers. Once you’ve reached the end of the timer set (or the bottom of the chosen stack), stop. Go ahead and toss out the trash/recycling pile, and bag up the items that need to be shredded. By cleaning up quickly, the next sorting session will feel less cluttered and less overwhelming! Plus, it feels like you’ve accomplished something!
If you’re feeling good at the end of one ten-minute session (or one small stack), you can keep going and do another session. But, if you’re getting tired or having a hard time making decisions, take a break. Coming back in a few hours or days will help you move through the next pile faster when your brain isn’t tired of making decisions.
Here are a few other tips:
Pull out bulky items first: Magazines, proxy statements, and catalogs require quick decisions and will help shrink your stack fast.
Start from the bottom: The oldest papers are often the easiest to get rid of, so flip your pile over and work from oldest to most recent.
Consider ease of replacement: If you’re unsure about keeping something, think about how hard it would be to obtain it again. For example, appliance manuals are often available online, whereas a tax receipt for a large donation may be difficult to replace.
Digitize undecided items: Take a picture of documents you’re unsure about. In a month or so, decide if you still need it. If so, email the picture to yourself to file electronically; if not, delete the picture.
Good luck with your spring cleaning!