Record keeping, what papers to toss and when?

pile-of-papersOne could say I am very meticulous as far as record keeping goes. I try to keep every more or less important paper document (receipts including) and over the past years several boxes have stocked up my basement storage space, all filled with records. I have a feeling however that I am overdoing it and the time has come to revise my record keeping strategy.

It is good to have a systematic approach and moderation is the key. If you try to keep all papers then finding the right one will be increasingly difficult, on the other hand you don’t want to be missing some important document either since it could end up costing you time and money. So what is this minimum that you need to maintain?

Go digital whenever it is possible

Managing digital documents is easier than paper ones and if your utility company or bank offers paperless statements, go for it! Some institutions will even allow you to request free paper records for older time periods (e.g. Citibank). Others will plainly charge you if you don’t sign up to electronic statements (e.g. TD Ameritrade). Banks will often scan your deposited checks and will allow you to see the image online. If you use one of the online tax services to do your taxes (e.g. TurboTax), the chances are you can look up all your past tax returns from your account.

What to do with the daily receipts

So far I have kept all the receipts in a folder with monthly pockets. This is not working for me because some months I will have so many receipts that it would take me forever to find the one I need. I am planning to separate the receipts into two folders. The receipts on items like food and gas will go into the first folder. Electronics, computers, and clothes (basically anything I may have to return) will go in the second folder. I intend to hold on to the receipts in the first folder for one month. Receipts in the second folder will stay for one year.

What to do with home improvement receipts

I keep any of these for as long as I own the house. They can be useful down the road if I have to sell the house early (e.g. to avoid capital gain taxes) or if I want to convert it to a rental properly. Although the first scenario is not likely in the current housing market.

What to do with utility receipts

These should be shredded right after you verify your previous payment unless you want to use them to deduct your home office expenses. These include payment receipts for car insurance, cell phone service, internet, cable, gas, electricity, water and sewer, etc.

What to do with service receipts

I keep car service records for the entire life of the car. If I sell the car to a private party, the records help me show that I took a good care of it. I keep home appliance service records for the life of the house since some of them could be used in tax returns while other could be used to find the company that did the repair (when the appliance breaks again). I am yet to send any electronics for service, but if I do, the papers will go my ‘warranty’ folder and would stay there for the life of the serviced equipment.

What to do with health care receipts

Health providers usually don’t confirm the receipt of funds and so I tend to hold to any papers I receive from them for a long period of time after hearing a story about a hospital that had a records mix up and put a patient on collection after he/she failed to prove that a bill was paid (due to a missing receipt). I find the story difficult to believe however since any payment could be verified with the bank. Anyway, all my health related papers stay for 5 years.

What to do with financial statements

Financial institutions are ahead of everyone else as far as going paperless is concerned and so I don’t get too many papers from them. Anything I receive is usually needed for the tax return and I keep these papers for 3 years since this is how long it may take the IRS to review your return. They go into a special folder when I do my taxes and mostly include W2 and 1099 forms. All the other statements (if any) get shredded at the end of the year. It is also worth mentioning that I use Mint for financial planning and review & categorize all expenses on a weekly basis.

Photo credit to nigelmaine at flick

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1 Response to “Record keeping, what papers to toss and when?”

  1. 1 M S Jan 31st, 2010 at 6:16 pm

    Good post, Yan!
    Keep it up.

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