Things to Know About Keeping and Shredding Key Financial Documents
May 11, 2020 Author: Tess Downing, MBA, CFP®, Complete View Financial
When most people think about financial planning, they think about making important decisions such as investment decisions, creating a retirement plan, and deciding where to allocate their resources. However, while it may not be the “flashiest” component of managing your wealth, it is also important to develop responsible record-keeping habits as well.
Over the course of your life, you’ve maybe come across a box of someone’s old receipts proving they spent $0.79 on a can of Coke at their neighborhood deli in 1982. It is not unusual for people, especially people who were financially active prior to the digital era, to document every financial transaction and payment they have ever made.
Is saving these sorts of “financial documents” actually necessary? In this specific situation, the answer is probably no. But of course, this begs the question, which financial documents do I need to keep? How can I responsibly store and dispose of these documents, as needed?
Which Financial Documents Do I Need to Keep?
To expand on the example mentioned above, you do not need to keep receipts for an ordinary personal purchase, such as $0.79 can of soda. However, anything you plan on deducting from your taxes—whether for business or personal purposes—should be kept for three years. While less than 1 percent of taxpayers are audited each year, it is a good rule of thumb to assume you will be one of these unlucky few. When this is the case, any deductions that have been made from your tax obligations will need to be defended.
- Tax Documents: the IRS has up to six years to audit your previous tax returns, so it is generally a good idea to hold onto these documents for seven tax years. This includes your tax returns, along with other documents that provide evidence for your deductions.
- Property Records: keep any records relating to the purchase, development, and sale of your home for six years after your property has been sold.
- Credit Card Statements and Bills: make sure that all statements are correct and all payments have been made. After one additional period (typically a month) has passed, feel free to discard these.
- Paycheck Stubs: to be safe, it is generally a good idea to hold onto all paycheck stubs until the end of the tax year.
- Trading Records and Brokerage Statements: because your financial activities (such as stock trading) will affect your tax obligations, be sure to hold onto these for the entirety of the audit window (aka seven years).
How Can I Safely Store My Financial Documents?
If you are storing your records at home, it is a good idea to purchase a safe that both you and another person (such as your spouse) knows the combination to unlock it. It is always a good idea to have at least one other individual know how to access all key records and accounts, just in case something happens. Furthermore, for added security, use a unique password for each online account and, if possible, ensure that this information is securely encrypted. Using the same, guessable password (Spurs123!) for every account that you use can quickly become problematic.
If you are not comfortable keeping your records at home, which many people are not, you can also keep them at a safety deposit box at your current bank or credit union. This is probably the most secure option available—even in the rare event that someone robs the bank, the safety deposit boxes are likely to be left alone. Remember to select at least one other person—a spouse, family member, or even a friend—to give a key or grant emergency access. Failing to designate a “backup” person could create complications down the road.
What are the Best Methods for Disposing of Sensitive Financial Documents?
When getting rid of financial records, be sure to use a shredder. While not exceptionally common, going through the trash or recycling bin is one of the easiest ways for people to find sensitive financial information and commit fraud—these records will need to be as unreadable as possible.
If you don’t own a shredder, there are many businesses (including your bank) that will be willing to dispose of these documents for you. For individuals who want to be extra cautious, consider separating the waste created from each document into separate bags or containers
As long as records are involved in personal finance, you will want to be sure to take measures to manage them responsibly. By knowing which records to keep, how to store them, and how to properly get rid of them, you can increase your state of financial security and give yourself some peace of mind.
For more detailed financial advising, contact Complete View Financial for more help today!