Set Your Records Straight

Know How to Manage Financial Documents—and Why

Know how to manage financial documents. Why it important to set your records straight.

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, CFP®, senior director of strategic programs and alliances for the National Endowment for Financial Education® (NEFE®)

Financial journalist Beth Kobliner expands on this in her book Get A Financial Life: Personal Finance in Your Twenties and Thirties, a New York Times best-seller. For incoming paper, she says, your basic guideline is to keep what you need for insurance, tax, or warranty purposes. Kobliner and other financial advisors 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.

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 storing 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 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 (that’s how Travis and Alesha stay organized).

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 boxes 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,” says Neiser. “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 crosscut 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 the National Endowment for Financial Education.]