August 2022
By Jessica Lanning, JD, CFP®
If you’re like most people, you have a lot of documents lying around your house. You’ve probably been told at one time or another that you need to keep some of them and get rid of others, but you procrastinate because you don’t know what to keep, for how long, and where to put it. This article will discuss all that, why it’s important to keep these documents and offer some tips on how to organize them. Let’s get started!
(We’re only going to cover household documents here, as business document retention is another ball of wax.)
Why It’s Worth Organizing Your Documents
If you’re not already in the habit of organizing your “paperwork,” then you probably have a pile of it somewhere or in many places and the task of going through it is understandably daunting. Some of us are not oriented to organization. For some of you, hiring a professional organizer is going to be your answer, but for a lot of us, we can get it done.
The key here is to make it fun. Do it with someone like your spouse/partner or a kid. Get it done with some music in the background and maybe a glass of wine for a few nights a week for maybe a week or two. I’m also going to encourage you to buy some new toys, which is typically fun, too. Your kids will love it.
I mention fun before function because you already know why you should do this: to get rid of the clutter, to make room for other things in your life and your brain, and to make it easy on yourself in the future. Once you’ve built a system to handle all this stuff and put it on autopilot, the amount of time you’ll spend on this going forward is going to decrease dramatically. You’ll love how easy tax time is. You’ll love having less clutter. You’ll love the feeling of freedom from this task.
You just need to commit and get started.
To Scan or Not To Scan
In this day and age, storing documents electronically makes the most sense. Most of us receive and pay bills electronically, receive our account statements and paystubs electronically, and shop electronically.
For most purposes, even IRS audits and product warranties, electronic copies of documents are acceptable. Whatever comes in paper can simply be scanned and stored except for those items for which you must have the original.
If you’re going to stay “old school” and keep paper, that’s fine. You’ll spend more time each year having to organize your paper, but if it makes you feel better, do it.
Go Buy New “Toys”
All you gadget lovers are going to love that you’re about to get permission to buy some more gadgets. For those of you less gadget-y, let’s keep it simple.
For each of the items below, your priorities are the following:
- It must fit in your house.
- It must be easy to set up and use.
- It must be reliable.
As you shop, you’re going to be tempted by all sorts of bells and whistles. Check yourself. Simple is usually the best. Easy to use and reliable means you’ll actually use it and have it for a long time. Don’t overthink this. Action is better than more procrastination.
I’m not going to mention specific brands here because technology changes, products improve, and new manufacturers jump in the market. Do your research. Remember, don’t overthink it. No need to be fancy, either. Middle-of-the-line products are sufficient.
I highly recommend acquiring the following items:
- Scanner. You want a scanner that has a document feeder for multipage documents, goes fast enough, provides PDF images, and gets the images pretty accurate the first time. Color scanning for document retention purposes tends to be less important. Black-and-white with a grey scale option is usually adequate. If not a scanner, then waterproof boxes. If you’re truly going to keep retaining paper documents that could be held electronically, get some waterproof boxes. You’ll need four that are big enough to hold one year’s worth of document yet small enough not to take up too much space.
- Shredder. Your choice of shredders will likely come down to your level of paranoia. Cross-cut is probably not necessary, but it’s not a bad idea. What is key is to get one that will eat credit cards and that will shred at least ten sheets at a time. A six-sheet shredder seems plenty until you get a three-page credit card offer in the mail that is folded into thirds. Bigger feeders also make the task go faster. Buying a well-respected, been-in-the-business a long time brand is worth it.
- Fire-proof safe. Yes, a safe deposit box at a bank works, too. They seem less available these days and more pricey, and remember they’re only available when the bank is open. These days everyone seems to have a home security system, and the fire-proof safe kept at home is popular. The debates here will be (1) whether to get one that sits on the floor or is mounted into the wall and (2) if you want it to be theft-deterrent as well. You can spend a lot of money on this. If you’re getting started, focus on the fire-proof part.
Your Goals: New Baseline and New System
New baseline. Your initial purge and organization task is to get rid of what you don’t need and get the stuff you do need to keep organized and stored. At the end, your document storage should be up-to-date, meaning you only have what you need to keep.
New system. While creating your new baseline, you also want to build a system that looks like this:
For electronic storage:
- Have a place to put unsorted documents. This is an inbox or basket on the kitchen counter. Done daily.
- Shred what needs to be shred now. Things like credit card offers. Done daily or weekly.
- Scan the rest. Done monthly.
- Shred that. Done monthly.
- Optional: Delete documents you no longer need. If you have enough storage space, there’s really no pressing need to do this.
Paper storage:
- Have a place to put unsorted documents. This is an inbox or basket on the kitchen counter. Done daily.
- Shred what needs to be shred now. Things like credit card offers. Done daily or weekly.
- File the rest.
- Annually clear out what you don’t need.
Your Guiding Principle: When in Doubt, Keep It
The below is what should be kept, for how long and why. When in doubt, keep it.
The List
Keep until warranty expires or you can no longer return or exchange an item. You’ll need proof of purchase.
- Sales receipts (if needed for tax purposes keep for 3 years)
Keep while in process. You’ll need it for reference.
- Contracts
- Insurance documents
- Stock certificates
- Property records
- Stock records
- Pension and retirement plan records
- Property tax records where the bill is disputed
- Home improvement records (hold for four years after home is sold)
Keep 1 month
- ATM Printouts (throw out after reconciling your accounts)
Keep for 1 year. As long as you can access these online, you don’t need a local copy.
- Paycheck stubs (compare last one to your W2 and Social Security statement, then toss)
- Utility bills (unless you need them for tax purposes, e.g., home office deduction, then keep for three years)
- Canceled checks (unless needed for tax purposes, then keep for 3 years)
- Credit card receipts (unless needed for tax purposes, then keep for 3 years)
- Bank statements (unless needed for tax purposes, then keep for 3 years)
- Quarterly investment statements (once you get an annual statement, then toss)
Keep for 3 years. Always keep a local copy.
- Income tax returns (unless you omitted 25% of your gross income, then hold for 6 years; always file a tax return even if you have no tax to pay)
- Medical bills and canceled insurance policies
- Records of selling a house
- Records of selling a stock
- Receipts, canceled checks that support income or deductions on your tax returns
- Annual investment statement
Keep for 7 years. Always keep a local copy.
- Records of satisfied loans
Putting the list of documents and the document retention schedule appears at the bottom of this article was no accident. Get your system in place first so that when you do the sorting, scanning and shredding you’re building muscle memory that will sustain you for a lifetime. And keep your fingers out of that shredder.
If you need clarification or assistance on your document retention plan, please reach out.
Lanning Financial Inc. is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.