Ah spring! A time when fancy turns lightly to thoughts of love. At least that’s Lord Tennyson’s opinion. For us more practical types, the season carries heavier obligations. Come April, we must turn to tax preparation and spring-cleaning.
Both chores entail hard decisions. What should I keep, and what can I toss? If I keep it, for how long? And where do I put it?
Leaving aside the really tough dilemmas such as whether 10 pairs of black shoes are too many, or not quite enough, let’s focus instead on financial documents. As you prepare your taxes or clean out your desk drawers, you’ll inevitably be asking the “save or keep” question many times. But without some guidelines, you may find yourself once again punting, and stuffing everything in one big envelope to be dealt with “sometime” later, or by your accountant whose fees seem to increase exponentially with the amount of “stuff” in your envelope.
KEEP and buy a file cabinet.
This pertains to all information, both financial and personal, that should be kept permanently and in original form, such as marriage, birth, adoption, citizenship and death certificates; diplomas and transcripts; veteran’s papers; health records (immunizations and surgeries); Social Security cards.
Estate planning documents, passports, and legal contracts, while not necessarily permanent given the importance of regular review and updating/renewing, should go into the cabinet as well. Your attorney may retain originals of your estate plan and contracts, in which case you might keep certified copies of these documents.
If the file cabinet is a physical fixture, it should be fireproof and secured with a lock. Give the key or combination to a trusted family member or friend, ideally your estate executor and/or trustees.
A safety deposit box in a bank vault is another form of permanent “file cabinet” you may wish to consider. Convenience, access and cost will be factors in making the choice.
KEEP online and buy a scanner and back up device.
As paper piles up, along with regrets for all those fallen trees, consider going digital. Online storage makes sense for information you need to retain for a period of time, but not necessarily in its original form.
This would include information the IRS can request for several years after you’ve filed: i.e., final returns and supporting documents, and records of real estate purchases and improvements. Generally the period for retaining this information is seven years, but if, for example, your returns over the past seven years include the sale of an asset that purchased many years prior, you’ll will need documentation of that purchase. Therefore, it is a good idea to retain the information on asset purchases for at least seven years after reporting to the IRS that the asset has been sold. For loans such as mortgages or student loans, you should keep them for at least ten years after the loan repayment.
Online storage also makes sense for those photos you took of your personal property for a potential insurance claim in case of loss or destruction. If you’ve opted to receive electronic delivery of your banking, credit, and investment account statements, these, too, can go into online folders. A good habit is to review them quickly each month, just to note any items that may need addressing, before you put them in online folders. For efficiency and economy, when you receive the year-end composite statements, go ahead and store them, but get rid of the prior 12 months’ worth of reports.
Regular back-ups of your information will be necessary. Have you ever seen a grown man cry at the Apple Genius Bar when he learns that his hard drive is kaput? It’s not pretty. Your backups can be done digitally – stored in the “cloud” – or with a peripheral device. Schedule alerts for this important task.
Many CFP® professionals provide encrypted online vaults for storing scanned information, in which case a strong password takes the place of a sturdy lock.
TOSS and buy a shredder or hit delete.
Every day we get mail, online or physically delivered, that we hang on to because we simply don’t know whether we will ever need it or not. Bills, statements, plan descriptions: once read, paid or otherwise acknowledged, then what? Before you pry open that overstuffed drawer, consider this: is the information retrievable and at what cost? Credit card companies, banks, and many service providers will provide historical information you no longer have in your “files” at no or little cost. Oftentimes this info is retrievable online on the company’s website with your account number or ID, and your password.
Consider an economists’ approach to the “save or toss” question. Compare the benefit of tossing to the cost of retrieval multiplied by the probability the information will be needed. It’s a rare case when the benefits don’t outweigh the costs. I have found, for example, that the act of shredding can be a zen-like experience almost as effective as meditation.
KEEP and buy an expandable file folder.
Okay, so you’re allowed one category of information that you can keep within visible reach, in paper form if you wish. These are the items that have term dates or are regularly replaced. Included would be the benefits statement of your insurance policies – property, auto, health, disability, long-term care; warranties; and your annual Social Security benefits statement. Buy one of those accordion file folders, with tabs labeled for each month, and file your information according to the month in which it will need to be renewed, cancelled, or revised.
Having taken these steps, you will undoubtedly feel tremendous relief – even a sense of lightness – which might even turn your fancy back to those thoughts of love. After all, Mr. Tennyson, isn’t this what springtime really should be about?