According to Consumer Reports only 40% of Americans claim that they can find a document in a moment’s notice. Another 49% can locate important paperwork with only a little bit of searching. Of those polled, 16% claimed to have lost money or incurred banking charges due to poor organizational skills. Another interesting factor in the Consumer Reports survey found that married women were more on track with organization of paperwork in the home than their spouses. A second interesting fact was that of those polled; the ones who actually enjoyed keeping their financial paperwork organized were over the age of 65. These statistics don’t bode well for the current state of organization.
There are several reasons why you should keep your paperwork organized.
- When it comes time to prepare your taxes and meet with your accountant, if you have been diligent with keeping your paperwork organized, then preparing to tackle your taxes will be a breeze. If you haven’t been organized, then what could take only an hour, might take a week.
- When a disaster hits like a fire, flood, or a home break-in, are you prepared to find your necessary insurance documents?
- If your health took a turn for the worse, would it be easy for your loved ones to pay your bills and take care of the banking?
Basically, there are three main categories of types of paperwork—keep for seven years, keep for one year and do not toss. This article will share some simple tips on how to organize your paperwork into these three categories and share online resources as well.
Category # 1: Keep For Seven Years
The paperwork that needs to be kept for seven years includes federal and state tax returns along with any types of supporting financial records for the correlating year. According to IRS regulations, your returns can become randomly audited for up to 3 years from the filing date. For those who failed to report “more than 25% of gross income, the government has 6 years to collect the tax or start legal proceedings.” (Source: Ideas.TheNest.com) Some people decide that they still want to keep their records after purging hard copies, and they save them electronically on a CD, flash drive or scanned into a computer file.
Category # 2: Keep For One Year
Stephanie Denton is a professional organizer and author of the book The Organized Life: Secrets of an Expert Organizer. There are several steps that Ms. Denton first suggests for organizing documents that you keep for 1 year.
- Set up an organized area in your home office, den or kitchen that works for you.
- Purchase a paper shredder to help in shredding personal documents and avoiding identity theft. A crosscut shredder works better than a strip one for such purposes.
- Purchase a secure filing cabinet system that works well for your document needs.
- Purchase a desk organizer with a tickler system for the following: bills to pay, to be filed later, and to be accessed monthly.
- Create a system for the filing cabinet with organized and alphabetized file folders.
Ms. Denton advises that there are some documents that do not serve any long-term purpose.
- Banking deposit and withdrawal slips and ATM receipts only need to be kept until you reconcile your check book with your monthly bank statements. After that, be sure to shred such receipts. Of course, for any business expenses, those receipts need to be saved for tax purposes.
- Pay stubs need to be kept for one year as needed for reconciling with your W-2 form during tax season. It is not necessary to keep those pay stubs after that and don’t forget to shred them as well.
- Credit card receipts are another example of paperwork that only needs to be kept for a limited time. When your monthly statement comes in, check the charges to make sure each charge is valid and keep the statement in a folder for 1 year. If you need to use it as proof for a tax deduction, keep it in your current year tax folder.
- Vehicle records such as receipt of purchase, titles, registration information etc. should be kept in a secure filing cabinet or a safety deposit box. Any maintenance and repair records can be stored in a regular filing cabinet.
- Current year tax records should be kept in your filing cabinet and begin to keep track of all expense receipts etc. so that you can save time during tax season.
- Insurance policies that automatically renew each year—for home, auto, renters or personal property—should also be kept in your filing cabinet. When you get the new coverage information, shred the old information.
Category # 3: Do Not Toss
Some documents do need to take up permanent residence in your home office. Six types of important documents need to be stored in a secure area.
- Birth certificates
- Death certificates
- Social security cards
- Marriage licenses
- Divorce decrees
- Military discharge papers
You might want to store them in your home in a locked and fireproof safe or filing cabinet. Another option is to store these documents in a safe deposit box. The following article from ConsumerReports.com shares some tips on choosing and using a home safe to store important documents and cash.
There are some other types of documents in the do not toss category that you need to permanently store in a secure area. Some of these documents include the following:
- Pension plan documents – keep these documents from current and former employers. It is fine to keep these documents in a filing cabinet.
- Estate planning documents and wills – If you have written a will, have trust fund documents or powers of attorney, keep these in either a safe deposit box or a secure safe in your home which is also fire proof. Your attorney and the executor of your will should also have copies of the will and powers of attorney.
- Life insurance policies – these permanent life policies have a cash value or investment component and need to be kept in a secure safe or safe deposit box. For term life policies, they need to be kept and can then be discarded after the term ends.
- Safe deposit box inventory – If you decide to open a safe deposit box, it is very important to keep your keys in a secure location. Keep an inventory list of items kept in the box and update it accordingly as more items are added. If you decide to keep original documents in the box, you may want to keep photocopies of the documents in a locked cabinet or secure safe in your home in the event you need to quickly refer to them.
Organizing your paperwork can seem like an overwhelming task, but it does not have to be. There are many benefits to staying organized and for those who follow the simple steps outlined in this article; keeping paperwork organized will become a simple task.
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