Simple Record-Keeping Tips
October 2020 Issue • Everyday Cheapskate
by Mary Hunt
If the paper monster has you buried under an avalanche of receipts, bank statements, ATM slips, investment records, paycheck stubs and bills, then read on. The good news is you can probably throw most of it away without worry. But before you fire up the shredder, you need to know what to toss and what to keep—and for how long.
STEP NO. 1: TOSS ALL YOU CAN
Monthly. Once you have recorded the amounts and reconciled your bank and credit card statements, you can shred ATM receipts, bank deposit slips, credit card receipts and sales receipts at the end of each month. Exception: Keep receipts for purchases that may be tax deductible, those that involve a warranty and any item whose replacement cost exceeds the deductible on your homeowners or renters insurance.
Yearly. Once you receive and reconcile your W-2 against your final pay stub, you can toss your paycheck stubs for the year along with monthly credit card and mortgage statements, phone and utility bills, and quarterly and monthly investment reports. The same goes for other statements that detail the entire year’s activity on the final end-of-year statement.
STEP NO. 2: KEEP WHAT YOU MUST
Three to seven years. Hang on to these year-end statements that recap the year’s activities for at least three years: credit card accounts, mortgage statements, investments, W-2s, 1099s, canceled checks and receipts for deductible expenses, retirement account contributions, charitable donations, child care bills, mortgage interest and all other items that support your income tax filings. The IRS has three years to examine your tax return for errors and up to six years if there’s reason to suspect that you underreported your gross income by 25% or more. Until all possible audit windows close, you should retain all supporting documents.
Indefinitely. Keep tax returns for the long haul, and keep receipts for major purchases and home improvements as long as you own them. In the event of an insurance claim, you may need to prove the purchase, or your heirs may need to know how much you paid to determine the profit for tax purposes.
STEP NO. 3: PICK A SPOT
If you don’t have a designated place for paperwork, it’s going to end up in piles all over the house. The secret for taming the paper monster is to designate one room, corner, drawer, cabinet or closet for storing all of your paperwork. You’ll need a trash can, file folders, a container to hold them and a place close by to write. Keep all of your important papers in this one place, and create a file folder. One folder might be labeled “Tax Deductible,” another “Insurance” and so on.
STEP NO. 4: STICK TO IT
Get into a routine of tossing what you can and filing the rest. Keep your system simple, and you’ll be more likely to stick with it.
You’ll be amazed at the difference a little organization will make in your life. You’ll be less likely to misplace bills, miss payment deadlines or forget to take valuable tax deductions—but the big payoff will come in peace of mind.
Would you like more information? Go to EverydayCheapskate.com for links and resources for recommended products and services in this column. Mary invites questions, comments and tips at EverydayCheapskate.com, “Ask Mary.” This column will answer questions of general interest, but letters cannot be answered individually. Mary Hunt is the founder of EverydayCheapskate.com, a lifestyle blog, and the author of the book Debt-Proof Living. ©2020