Drawers overflowing with old bills and tax returns. Shoeboxes full of receipts.
Does your financial clutter bring you joy? Probably not. So let’s take a page from organizational guru Marie Kondo and tidy up.
These three steps can help you figure out how to let go of unnecessary financial papers:
When it comes to organizing your financial papers, we can translate Kondo’s often-asked question “Does it spark joy?” as, “Will you be glad you kept this?” To figure that out, there are three more questions to consider, says Neal Stern, a certified public account and member of the American Institute of CPAs’ Financial Literacy Commission:
- What task might require those papers?
- What’s the expiration date on that need?
- How easy would it be to replace a document?
Let’s take tax returns as an example. You could need to reference your Form 1040 (or other documents supporting your return, such as W-2s, 1099s and deduction-related receipts) if the IRS later has questions, Stern said. Generally, the agency has up to seven years to reach out from the time you file. And while you might be able to recreate parts of an old return, it’s easier just to save your copy so that you can respond to the IRS quickly.
On the flip side, checking account and credit card statements can generally be tossed once you’ve reviewed them to make sure the charges are accurate, he says. “After that, keeping those statements probably doesn’t have a lot of purpose,” he says. Plus, you could obtain digital copies from your bank if needed.
Some of the paperwork that you may want to hang onto the longest involves investments. When you sell, you’ll need details at tax time about how much you originally paid, Stern says. That’s key in calculating your gains or losses and their tax treatment. Brokerages won’t necessarily have records on your cost basis for older investments, and even if they do, it helps to have your own documentation to check against their numbers, he says.
Once you’ve figured out what to keep, the next consideration is, how do you store it?
“Keep the documents you’re retaining in an organized way,” Stern says. If you do need to reference them, “you don’t want to have to go on a scavenger hunt.”
Digitize what you can. That lets you clear your cabinets of paperwork you should keep but that doesn’t require a physical copy (say, those old tax returns), and create a backup of important items (such as the deed to your home, Social Security cards and birth certificates), Stern says. Store those files in a secure cloud-based service (such as Dropbox or Google Drive) so that you don’t lose access if something happens to your home computer.
Secure any paperwork you do keep in a locked cabinet or, even better, a fireproof, watertight safe. That keeps sensitive information away from prying eyes. And in the case of a safe, it can add a layer of protection against devastating disasters like fire or flooding.
Whatever papers you toss, dispose of them carefully—as in, shred them. If you don’t have a shredder at home, look for community-sponsored shredding events. They’re especially common this time of year for spring cleaning.
“One of the most prevalent way of identity theft is the most low-tech way of all. It’s called dumpster diving,” Stern says.
So make sure your financial information in the trash doesn’t spark joy for a thief.
Here are some other key takeaways from this week to help you grow your knowledge:
Invest like Buffett. Grow contributor Carla Fried digs into some of the advice legendary investor Warren Buffett has doled out over the years, and how we can harness it to reach our long-term goals.
Score more college aid. College acceptance letters and financial aid packages are starting to arrive. Grow contributor Chris Taylor walks us through how to compare financial aid offers to figure out which college is offering the best deal.
Avoid “selling low and buying high.” That’s what happens when you panic during a bumpy market. Fried explains how timing the market could cut your returns in half (or worse).
Develop great money habits. No pressure, but the money habits you pick up in your 20s can have a big impact on your bottom line for years. Grow contributor Molly Triffin offers up four important concepts that you should grasp by age 25.
We’d like to hear the financial goals you’re fired up about and the milestones you’re hoping to achieve. Let us know your best strategies and successes. If you need us to tackle a specific topic, just ask! We’re in this together, so let’s get this conversation started. Send an email to firstname.lastname@example.org.