Have you been inspired by Marie Kondo to declutter and get organized? It’s hard not to be if you’ve read her best-selling book, “The Life-Changing Magic of Tidying Up,” or watched her new Netflix show, “Tidying Up With Marie Kondo.”
Her KonMari method entails tackling your clutter by category, holding items and only keeping those things that spark joy. But if you get to category three in Kondo’s method — paper — you might run into a little trouble because tax forms, bank statements, bills and receipts probably won’t spark any joy. But that doesn’t mean you should toss them.
Tony Steuer, author of “Get Ready! A Step-by-Step Planner for Maintaining Your Financial First-Aid Kit,” said that if you’re trying to declutter, it’s important to know which financial documents to keep and for how long. Once you know what you should be hanging onto, you can develop a system to keep your documents organized, which he said has the added benefit of helping you take control of your finances.
Why You Should Tidy Up Your Financial Documents
When it comes to your finances, being disorganized can leave you feeling out of control. It can create stress every time you have to track down important documents but can’t find them. It can make the onerous task of filing your tax return even more difficult. And being disorganized can cost you if you’re making late payments because of misplaced bills and financial statements.
All this is why you should take the time to go through your financial documents and get organized. “It’s a way of putting yourself in control of your own financial life,” Steuer said. If you use the KonMari method and pick up each financial document, taking the time to read what’s in your hands will help educate you on the various components of your finances, he said. It might help you realize how much debt you have by reviewing all of your credit card and loan statements. It could help you pinpoint gaps in your insurance policies. And you might identify unnecessary fees you’ve been paying because you haven’t paid close attention to your financial statements.
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Financial Documents You Should Keep
Getting organized doesn’t mean tossing everything. In fact, Steuer said there are several types of financial documents you should keep. Some of these documents you should hold onto indefinitely, but most should be kept for six years to protect yourself in case of an audit. The IRS can include returns filed in the past three years in an audit but will look back as far as six years if it finds a substantial error or suspects fraud. Here are more details on what to keep and for how long:
Bank Account Statements
Keep your monthly bank account statements for six years after the date you received them. Keep ATM receipts and debit card transaction receipts until you receive your monthly statement to reconcile all of your transactions, Steuer said.
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Credit Card Statements and Receipts
If you need your credit card receipts for tax purposes, hang onto them for six years, Steuer said. Otherwise, you usually can toss receipts at the end of the month once you reconcile them with your statement — unless a receipt serves as a proof of purchase for a warranty or is necessary to return an item. Hang onto credit card statements for six years.
Hold onto any insurance policy documents you have until coverage ends or the policy is canceled.
Keep these documents until your loans are paid off. Keep the final statement showing the loan has been paid in full indefinitely.
Medical Bills and Health Insurance Statements
Keep insurance summary of claim statements until you receive bills to ensure that you’re not overbilled. Keep medical bills for six years, especially if you deduct medical expenses on your tax return. And hold onto documents that show major medical procedures or treatments you’ve had indefinitely.
Keep your pay stubs until you get your W-2 or 1099 to make sure the amount you were paid is accurately reported in those tax documents.
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Property Purchase Documents
Keep documents related to the purchase of real estate, vehicles, boats, investments or any other property as long as you own that property or asset. After selling that property, hold onto documents related to the purchase and sale for six years, Steuer said.
If you are a landlord, keep these agreements six years after the agreement is terminated. If you’re the renter, hold onto rental agreements at least a year after moving out in case any disputes arise with your former landlord, Steuer said.
Retirement Plan or Pension Statements
Keep these annual statements for six years.
Keep tax returns, supporting documents and receipts you need to support tax deductions you claim for six years. However, if you file a claim for a loss from worthless security or bad debt deduction, keep those records for seven years.
How to Store Financial Documents
Organize paper documents into folders by category. At the end of the year, you can put those documents in a box, as Steuer does. Mark the year on the box, then after six years, you can shred everything in the box. “It feels really good to say I can get rid of that box,” he said.
Of course, you might not have room to store six boxes full of documents. Steuer recommends scanning your documents and organizing them into file folders on your computer. Then create a master folder for each year.
If you get financial statements electronically, save them into computer file folders to keep track of them. “The magic of digital is you can keep it forever and don’t have to worry about destroying it in six years,” Steuer said. Just make sure you have a great, secure back-up system — such as the Apple iCloud or Dropbox.
Click through to read more about every document you would need to defend yourself during an audit.
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