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Your Paper Trail: What to Keep and What to Toss

Your Paper Trail: What to Keep and What to Toss | CashCourse: Your Real-Life Money Guide

If you’re striking out on your own for the first time, think twice before you throw out that next store receipt or bank statement. It’s time to start your own paper trail, whether real or virtual. At tax time or in an emergency, it could save you headaches and money.

But how do you keep your records in order, when you accumulate paper with every coffee purchase and paycheck? The easiest option is extreme: You can collect receipts and pay stubs like a pack rat, but you’ll quickly get buried in documents and lose time later hunting for a specific record. The smart option, however, is to invest a little time as soon as paper comes in to figure out whether to toss it or file it.

What to Save and What to Throw Away

“The big rule of thumb is if it’s tax-related, you want to keep it longer,” says Brent Neiser, senior director of strategic programs and alliances for the National Endowment for Financial Education® (NEFE®).

Financial guru Beth Kobliner expands on this in her book  Get A Financial Life. For incoming paper, she says, your basic guideline is to keep what you need for insurance, tax, or warranty purposes. Kobliner and other financial advisers recommend sorting records into categories based on how long they should be kept: what to throw away now, what to save for a year, what to save for seven years, what to save forever—see the specifics in our handy chart.

Why

What

OK to Toss

Bills and receipts can be tossed once you have paid them and compared them with credit card and bank statements.

Old bills (phone, utility)
Grocery store receipts
ATM receipts

Keep for a Year

Certain items should be kept for up to a year to check against year-end statements and for tax filing purposes, in case you need to itemize deductions.

Store receipts —unless you need them for tax, insurance, or warranty purposes (which you should then keep for as long as you need them)
Pay stubs—to match up with the Form W-2 your employer sends

Keep for 7 Years

The Internal Revenue Service (IRS) can audit your records for up to seven years after filing.

Bank and credit card statements that include tax-deductible charitable donations, tuition costs, business or medical expenses
Any records needed for tax deduction purposes that are not already included on bank and credit card statements

Keep Until Not Needed

Some records need to be retained for an undefined amount of time, from a year for a short-term warranty to several years for documentation of loans you’re still paying off.

Warranties until expired
Loan documents until loans are paid in full
Insurance policies until expired and outstanding issues are resolved
Receipts, including model/serial numbers, for major purchases (cars, equipment, appliances)
Animal registration and immunizations
Reports and insurance claims (for theft or accidents)
Title to your car
Receipts for major items you have sold
Lease agreements and membership contracts
Credit card and bank account agreements

Keep Forever

Documents that are hard to replace should be stored in a secure fireproof box or safe deposit box.

Birth certificate
Educational records(transcripts, diplomas)
Employment records, including military papers
Adoption papers
Citizenship documents
Marriage certificate(and divorce, alimony, custody agreements)
Important health records such as immunizations
Passport
Social Security card
Year-end pay stubs and bonus statements
Records of contributions to retirement accounts
Change of name legalization papers
Stock and bond certificates
Mortgage, home deed and improvement records

If you’re still unsure about whether to keep a record after reviewing the chart above, go to the main source. The Internal Revenue Service (IRS) gives guidelines on what records to keep, for how long, and why. If that doesn't answer your question, call the IRS at 800-829-1040.

How to Save and Throw Away

Now that you know the basics, you’re ready to build a system for housing records that you must keep and safely getting rid of stuff you don’t need.

Simple Savings Setup

Depending on your organizational style, you can choose from a variety of affordable ways to help you manage your records. If you go the electronic route, be sure to stay on top of the technology and security issues that go along with virtual storage.

Easy Physical or Electronic Storage

Next time you make a Target run, buy an inexpensive accordion file, or order one online. Park it next to your desk or wherever you go through mail and pay bills. Keep a shoebox or tin nearby to put receipts that you can compare to bank and credit card statements once a month.

If you prefer to go paperless, start an electronic storage system via an external hard drive; a free online storage account from outlets like Shoeboxed; or cloud storage offered by sites such as Dropbox, Amazon, Google, and Apple. Then, take and upload photos or scans of any physical records so you can store them online along with your electronic documents.

Secure Long-Term Storage

Whether you like hard copies or virtual, you’ll need a fireproof lockbox at home or a safe deposit box away from home to keep irreplaceable paper documents such as your birth certificate. You can find inexpensive fireproof safes online and get annual rates for safe deposit boxes from your bank or credit union.

Safe Paper Purge

Much of what you've identified as safe to throw away can go straight into the recycling bin. But be sure to shred any documents with personal information such as Social Security numbers or account numbers.

Identity theft is a big issue when it comes to throwing away sensitive documents,” Neiser says. “That’s why it’s important to rip up any credit card offers you don’t want that come in the mail and shred all documents with your personal financial information, preferably with a cross-cut shredder that slices paper in two directions.”

If you don’t have a shredder, check with your employer, local government, or nearby office supply stores for “shredathons,” designated days when anyone can bring in their documents and have them shredded for free.

(Any reference to a specific company, commercial product, process, or service does not constitute or imply an endorsement or recommendation by CashCourse or the National Endowment for Financial Education. These courses and related resources may be used only for nonprofit, noncommercial educational purposes. CashCourse makes every effort to keep the information in these courses current, but, over time, new developments as well as legislative and regulatory changes may date this material. If you discover inaccurate information, please contact us.)

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