Financial Documents: Should You Save or Shred Them?

Financial Documents: Should You Save or Shred Them?

Are you a 'pack rat' or 'purger' when it comes to personal documents? The best approach is somewhere between the two extremes. Try these suggestions for a sensible but streamlined way to manage your paperwork.

Keep for at least 7 years

In general, your tax returns can be audited for three years after you file, but that period can increase to seven years if the IRS suspects fraud or unreported income. And naturally, you must be able to produce all supporting documentation. The good news? The IRS will accept legible electronic records, so copy everything to a DVD or flash drive and store it with your 'keep forever' documents. (Don't forget to delete any tax-related records from your hard drive for security reasons.)

Keep forever

Because photocopies or scanned images of legal papers are usually not valid, store originals of these documents in a fireproof container or safe deposit box.

  • Marriage licenses, divorce, and custody decrees
  • Birth, adoption, and death certificates
  • Wills, trusts, financial and medical powers of attorney
  • Passports and citizenship papers
  • Military records

Keep while you own the asset

  • Property abstracts, mortgage documents, insurance policies, and receipts for home improvements
  • Vehicle titles, purchase or lease documents, and auto insurance policies
  • Receipts, warranty certificates and operating instructions for household items
  • Stock certificates and retirement plan records

Scan and save digitally or shred

Unless you have to retain originals of these documents for business purposes, the following space-wasting items can be stored digitally and/or shredded each month.

  • ATM receipts
  • Bank statements and paystubs
  • Medical, utility, and credit card bills

Go paperless when possible

Many of your recurring expenses can become paper-free transactions, eliminating the need to write checks or buy stamps. You can even choose to receive automated reminders so you won't overlook due dates. To protect your private information, sign up for electronic billing on encrypted web sites that have the 'https://' prefix. And to save even more trees each month, opt out of junk mail lists. The Federal Trade Commission recommends contacting the Direct Marketing Association to reduce unsolicited mail. Other services, such as Catalog Choice and Do Not Mail, also may help reduce the amount of junk mail you receive.

While you're clearing out the paper, it may be a good time to update—or create—a home inventory.

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